Affordable Housing Data

Subprime Loans

Subprime loans are defined as loans that have an interest rate 3% or higher than a benchmark U.S. Treasury note. They are often concentrated in declining and economically distressed neighborhoods, and are typically given to people with poor credit. Because of the high interest rate, borrowers of subprime loans often find themselves undable to make their monthly payments. This, in turn, leads to increased defaults and foreclosures.

Subprime loans are tracked through the Home Mortgage Disclosure Act (HMDA) by an arm of the Federal Reserve Board called the Federal Financial Institutions Examination Council (http://www.ffiec.gov).

Subprime lending declined sharply in 2008. While home loans declined overall, due to the housing market collapse, subprime lending also declined as a percentage of home loans. The following map shows that in most neighborhoods, fewer than 10% of home purchase loan originations were subprime. Subprime lending is still concentrated in urban areas such as Allentown, Wilson and West Easton. (While one Census tract in Bethlehem shows a 50% rate of subprime loans, that statistic is based on only the two loans for that neighborhood.) The highest rate of subprime lending in the suburban parts of the Lehigh Valley is found in East Allen Twp., where 30% of home purchase loans were subprime (this represents a drop from the 35% subprime rate in 2007).

Sub-Prime Lending in the Lehigh Valley, 2007