Unequal Burden in Atlanta:

Income and Racial Disparities 

in Subprime Lending

April 2000

U.S. Department of Housing and Urban Development
UNEQUAL BURDEN IN ATLANTA:

INCOME AND RACIAL DISPARITIES IN SUBPRIME LENDING

This study presents a preliminary analysis of mortgage originations in the Atlanta

metropolitan area in 1998 using data reported under the Home Mortgage Disclosure Act

(HMDA). Nationwide, the HMDA data demonstrate the rapid growth of subprime refinance

lending during the 1990s and further, the disproportionate concentration of such lending in the

nation’s low-income and minority neighborhoods.1 These same conclusions hold in the Atlanta

metropolitan area.

The growth in subprime lending over the last several years has been a beneficial

development for borrowers with impaired or limited credit histories. Subprime lenders have

allowed such borrowers to access credit that they could not otherwise obtain in the prime credit

market. However, there is a growing body of anecdotal evidence that a subset of these

subprime lenders, who generally operate outside the federal regulatory structure, engage in

abusive lending practices that strip borrowers’ home equity and place them at increased risk of

foreclosure. For this reason, this report examines patterns in subprime lending to understand

where the risk and impact of predatory practices may be highest.

AN OVERVIEW 

In May 1988, The Atlanta Journal-Constitution published “The Color of Money”, a

series of Pulitzer Prize winning articles about the geographic disparity in mortgage lending

between black and white neighborhoods in Atlanta. The Atlanta Journal-Constitution series

revealed that in 1986, Atlanta lenders originated six times more home purchase loans per

owner-occupied housing unit in predominantly white as in predominantly black neighborhoods.2

A recent study concluded that although there had been improvements during the 1990s,

disparities in lending between black and white neighborhoods continue to persist in Atlanta.3

 

1

 See the HUD report Unequal Burden: Income and Racial Disparities in Subprime Lending in America, April

2000.

2

 In the “Color of Money” articles, the Atlanta Journal-Constitution classified tracts as predominantly

black (white) if blacks (whites) comprise at least 80 percent of the tract population. This paper adopts the

classification of tracts in the Woodstock Institute report, “Two Steps Back: The Dual Mortgage Market,

Predatory Lending, and the Undoing of Community Development,” Chicago, IL, November 1999. That is,

predominantly white neighborhoods are tracts where the minority percentage is less than 15 percent; and

predominantly black neighborhoods are tracts where blacks comprise at least 75 percent of the population.

The racial composition of neighborhoods is based on 1990 census data; there may have been some changes

in racial composition by 1998.

3

Elvin K. Wyly and Steven R. Holloway, “The Color of Money Revisited: Racial Lending Patterns in

Atlanta’s Neighborhoods”, Housing Policy Debate, 10(3), 1999, pp. 555-600.
2

These studies of mortgage lending in Atlanta focused mainly on geographic disparities in

home purchase lending. HUD’s analysis of home refinance lending in Atlanta reveals an equally

troubling trend. Black neighborhoods disproportionately rely upon subprime lenders to

refinance their mortgages.

By providing loans to borrowers who do not meet the credit standards for borrowers in

the prime market, subprime lending can and does serve a critical role in urban areas such as

Atlanta. Some borrowers may have blemishes in their credit record, insufficient credit history,

or non-traditional credit sources. The subprime loan market offers these borrowers

opportunities to obtain loans that they would be unable to realize in the prime loan market.

But there are two sides to this story. Since subprime lending often operates outside of

the federal regulatory structure, it may be a fertile ground for predatory lending activities.

Anecdotal evidence suggests that these practices may include imposing and financing excessive

fees, bundling high-cost loans with lump-sum credit life insurance, and requiring prepayment

penalties. Predatory lending can have disastrous consequences for less financially savvy

borrowers. Equity may be stripped from their homes, and in more egregious cases, they may

lose their homes altogether.

Some prime lenders have made significant progress in reaching underserved

communities. A recent report for the Treasury Department showed that banks and thrifts

increased the share of their mortgage originations to low-income borrowers and borrowers in

low-income communities from 25 percent in 1993 to 28 percent in 1998.4 However, as the

evidence in this report suggests, there are many Atlanta neighborhoods that could benefit from

increased competition from prime lenders in the home refinancing market. Such increased

competition would give borrowers in these communities alternative options to lenders that may

engage in abusive lending practices.

The first step to ensuring that subprime lending enhances the economic health of the

borrowers’ families without exposing them to predatory practices is to learn more about how

and where it operates in America. To further understand geographic disparities, HUD has

analyzed the problem nationwide and has now taken a look at the data on subprime lending in

Atlanta.5

THE FINDINGS FOR ATLANTA

 

4

 Robert E. Litan, Nicolas P. Retsinas, Eric S. Belsky, and Susan White Haag, The Community Reinvestment

Act After Financial Modernization: A Baseline Report, U.S. Department of Treasury, April 2000.

5

 HUD identifies subprime loans in HMDA using a list of lenders that primarily originate subprime loans.

For the list of lenders and a discussion of the methodology, see Randall M. Scheessele, 1998 HMDA

Highlights, Housing Finance Working Paper No. 9, Office of Policy Development and Research, HUD,

October 1999.
3

In general, the analysis shows that subprime lending is more prevalent in lower-income

and minority neighborhoods than in higher-income and white neighborhoods. This likely

indicates that because of their lower incomes, lenders may consider these borrowers to be a

higher credit risk, and these borrowers may therefore be less likely to qualify for prime loans.

However, a lack of competition from prime lenders in these markets to find creditworthy

borrowers may increase the chances that borrowers are exposed to the predatory practices of

a subset of subprime lenders. There is also evidence suggesting that after controlling for income,

predominantly black neighborhoods may be comparatively underserved by prime lenders.

The importance of subprime lending to minorities and low-income Americans, which is

documented in what follows, demonstrates how important it is to these communities that

subprime lending not include any lenders engaging in predatory practices.

1. From 1993 to 1998, the number of subprime refinance loans originated in

Atlanta increased by over 500 percent. The number of refinance mortgages

reported under HMDA by lenders specializing in subprime lending in the Atlanta

metropolitan area increased from 1,864 loans in 1993 to 11,408 in 1998.

2. Subprime loans are three times more likely in low-income neighborhoods in

Atlanta than in upper-income neighborhoods. In low-income neighborhoods,

subprime loans accounted for 21 percent of all refinance loans originated during

1998 – compared with only 11 percent in moderate-income neighborhoods and just

6 percent in upper-income neighborhoods.6 In the poorest communities, where

median family income is 50 percent or less of the area median income, subprime

refinances accounted for 43 percent of all refinance loans.

3. Subprime loans are almost five times more likely in black neighborhoods in

Atlanta than in white neighborhoods. In predominantly black neighborhoods in

Atlanta, subprime lending accounted for 33 percent of home refinance loans

originated during 1998 - compared with only 7 percent in predominantly white

neighborhoods.

4. Homeowners in moderate-income black neighborhoods in Atlanta are

almost twice as likely as homeowners in low-income white neighborhoods to

have subprime loans. In 1998, only 9 percent of homeowners in moderateincome white neighborhoods have subprime refinance loans while 27 percent of

homeowners in moderate-income black neighborhoods have subprime loans, which

 

6

 The census tract income categories are as follows: low-income tracts have median incomes that are less

than 80 percent of the metropolitan area median income (AMI); moderate-income tracts, between 80 percent

and 120 percent AMI, and upper-income tracts, greater than 120 percent AMI. These income categories are

also used for analyses of borrower incomes relative to the area median income.
4

is almost double the 14 percent of homeowners in low-income white neighborhoods

who have subprime loans.7

In addition, a recent study by Abt Associates of foreclosures in Atlanta found that

foreclosures of mortgages originated by subprime lenders have substantially increased since

1996 -- while the overall volume of foreclosures in Atlanta declined by 7 percent between 1996

and 1999, the volume of foreclosures started by subprime lenders grew by 232 percent.8 As

noted earlier, this increase in foreclosures in the subprime market occurred amidst a trend of

rapidly increasing subprime lending. Among lenders that report to HMDA, the subprime share

of total foreclosures had grown to16 percent by 1999, making it larger than the subprime share

of total originations (9-12 percent between 1996 and 1998). Abt also finds that, like

originations, the subprime share of foreclosures is highest in lower-income and predominantly

minority neighborhoods. The Abt study is reviewed below.

THE ANALYSIS

Subprime mortgage lending provides credit to borrowers with past credit problems,

often at a higher cost or less favorable terms than loans available in the conventional prime

market. In most cases, these lenders offer credit to borrowers who would not qualify for a loan

in the prime market, thus expanding access to credit and helping more families to own their own

homes. The higher costs of these loans may serve to offset the increased risk that these lenders

assume in lending to these borrowers.9

In some cases, however, subprime lenders engage in abusive lending practices known

as “predatory lending”, which hits homeowners with excessive mortgage fees, interest rates,

penalties and insurance charges that raise the cost of refinancing by thousands of dollars for

individual families.

HUD’s study of subprime lending focuses mainly on subprime refinance lending, which

accounts for nearly 80 percent of total (home purchase and refinance loans combined) subprime

 

7

 Of the 93 predominantly black tracts in the Atlanta area, there were 77 low-income tracts and 15 moderateincome tracts, but only one upper-income tract. Thus, this analysis of the Atlanta market is restricted to

low-income and moderate-income, predominantly black tracts. See HUD’s Unequal Burden report for a

separate analysis of moderate-income and upper-income predominantly black tracts at the national level.

8 Abt Associates Inc., Analyzing Trends in Subprime Originations and Foreclosures: A Case Study of the

Atlanta Metro Area, February 2000.

9

 However, there is evidence that the higher interest rates charged by subprime lenders cannot be fully

explained solely as a function of the additional risks they bear. See Howard Lax, Michael Manti, Paul Raca,

and Peter Zorn, “Subprime Lending: An Investigation of Economic Efficiency” (unpublished paper),

February 25, 2000.
5

mortgage lending nationwide and for 71 percent of subprime lending in Atlanta.10 HUD’s study

of subprime loans in the Atlanta metropolitan area found that:

1. From 1993 to 1998, the number of subprime refinance loans increased by

over 500 percent.

In 1993, there were 1,864 subprime refinance loans in Atlanta reported under HMDA.

By 1998, this number had increased by over 500 percent to 11,408. (See Figure 1.)

The magnitude and speed of the increase in subprime lending creates a critical need for

greater scrutiny. The rapid growth of subprime lending may help expand credit access for more

borrowers; however, some portion of subprime lending may be occurring with borrowers

whose credit would qualify them for conventional loans. Subprime lending may expose

borrowers to higher up-front fees and interest rates than they would bear if they had obtained

prime loans.

2. Subprime loans are three times more likely in low-income neighborhoods in

Atlanta than in upper-income neighborhoods.

HUD’s analysis reveals that subprime lending is being provided increasingly to low- and

very low-income families and their communities. In Atlanta, 11 percent of all refinance

mortgages in 1998 were subprime, but in low-income neighborhoods, the percentage of

refinances in the subprime market was nearly double -- 21 percent. (See Figure 2). In the

poorest communities, where families make 50 percent or less of the area median income,

subprime refinances accounted for 43 percent of all refinance loans. In upper-income

neighborhoods, only 6 percent of refinancing families relied on a subprime loan. In 1993, only 4

percent of refinance mortgages in low-income neighborhoods and 2 percent each in moderateand upper-income neighborhoods were subprime.

Broken down by individuals instead of entire neighborhoods, the impact is similar.

Low-income borrowers throughout the Atlanta metropolitan area are almost three times as

likely as upper-income borrowers to rely upon subprime refinancing (19 percent of low-income

borrowers versus 7 percent of upper-income borrowers.) (See Figure 5).

3. Subprime loans are almost five times more likely in black neighborhoods in

Atlanta than in white neighborhoods.

In predominantly black neighborhoods in Atlanta, subprime lending accounted for 33

percent of home refinance loans in 1998 - compared with only 7 percent in predominantly white

areas. While subprime refinance mortgages accounted for only one in fourteen refinance loans

originated in predominantly white neighborhoods, they accounted for one-third of the refinance

 

10 Subprime lenders are also active in the home improvement market. Home improvement loans of subprime

lenders were excluded from these comparisons.
6

loans originated in predominantly black neighborhoods. (See Figure 3.) Comparable 1993

figures were 8 percent in black neighborhoods and 2 percent in white neighborhoods.

Broken down by individual borrowers instead of neighborhoods, blacks in the Atlanta

metropolitan area are still carrying the greater proportion of subprime: in 1998, 20 percent of

refinance mortgages for black borrowers were subprime, compared with only 6 percent for

white borrowers. (See Figure 5).

4. Homeowners in moderate-income black neighborhoods in Atlanta are

almost twice as likely as homeowners in low-income white neighborhoods to

have subprime loans.

Notably, even after controlling for differences in neighborhood income, homeowners in

black communities are three times as likely as homeowners in white communities to refinance in

the subprime market. (See Figure 4.) Subprime loans accounted for 41 percent of all refinance

loans in low-income black neighborhoods, compared with only 14 percent in low-income white

neighborhoods.

Among homeowners living in the moderate-income white neighborhoods, only 9 percent

turn to subprime lenders. But 27 percent of homeowners living in moderate-income black

neighborhoods have subprime refinancing.11 In fact, this subprime share (27 percent) for

moderate-income black neighborhoods is almost twice the subprime share (14 percent) for

low-income white neighborhoods.

The maps of the Atlanta metropolitan area summarize the concentration of subprime

refinance loans in Atlanta. In 1998, subprime mortgages accounted for at least 25 percent of all

refinance mortgages in 101 (or 21 percent) of the 475 census tracts in the Atlanta metropolitan

area. Predominantly black census tracts accounted for 74 of these 101 census tracts with high

subprime activity.12 (See Figure 6.) Subprime refinances accounted for at least 25 percent of

all refinance mortgages in an additional 20 tracts where Blacks comprised between 30 and 75

percent of the population. (See Figure 7.)

Analyzing the data by the income and racial characteristics of the borrower (rather than

the neighborhood) provides similar patterns to those discussed above. There remains a large

 

11 As explained in footnote 7, there is only one upper-income predominantly black neighborhood in the

Atlanta metropolitan area. Thus, the analysis is restricted to low-income and moderate-income

predominantly black tracts.

12 Subprime refinance mortgages accounted for less than 25 percent of overall refinance mortgages in 19

predominantly black tracts and 38 tracts where blacks comprise between 30 and 75 percent of the

population. Government-insured refinance mortgages (i.e., FHA, VA, and RHS mortgages) accounted for

24-26 percent of overall refinance mortgages in these tracts compared to 12 percent for all tracts in the

Atlanta area.
7

disparity between black and white borrowers with similar incomes. For example, subprime

loans accounted for 31 percent of refinance loans originated for low-income black borrowers,

compared with only 10 percent for low-income white borrowers. Similarly, subprime loans

accounted for 19 percent of refinance loans for upper-income black borrowers, compared with

only 4 percent for upper-income white borrowers. As these comparisons show, upper-income

black borrowers are almost twice as likely as low-income white borrowers to rely on the

subprime market (19 percent versus 10 percent market shares).

ABT STUDY13

Abt Associates recently conducted an analysis of mortgage foreclosures in 12 of the 16

counties in the Atlanta metropolitan area. Abt examined mortgages that were entering the

foreclosure process between 1996 and 1999, and compared foreclosures of loans by subprime

and non-subprime lenders; Abt identified subprime lenders using HUD’s list of lenders that

primarily originate subprime loans.14 The Abt study showed the following:

• The overall volume of foreclosures in Atlanta declined by 7 percent between 1996 and

1999, but the volume of foreclosures started by subprime lenders grew by 232

percent.15 (See Figure 8.) Among lenders that report to HMDA, the overall share of

foreclosures attributable to subprime lending increased from 5 percent in 1996 to 16

percent in 1999.16 The subprime share of foreclosures (16 percent in 1999) is now

larger than the subprime share of originations (10 percent in 1996, 12 percent in 1997

and 9 percent in 1998).17

• Over the 1996-99 period, foreclosures with high interest-rate spreads (more than four

percentage points over 30-year Treasury) represented 44 percent of the subprime

 

13 Abt Associates Inc., Analyzing Trends in Subprime Originations and Foreclosures: A Case Study of the

Atlanta Metro Area, February 2000.

14 Abt obtained monthly data from the Atlanta Foreclosure Report (AFR) on advertisements for foreclosure

sales; as Abt notes, the data may include some properties that avoid foreclosure. Thus, the term

“foreclosure” in the Abt report should be interpreted as a loan entering the foreclosure process. See pages

12-16 of the Abt report for a discussion of the AFR data.

15 As shown in Figure 8, foreclosures for prime lenders declined by 15 percent between 1996 and 1999. Abt

did not have comparable data on the outstanding stock of loans in the Atlanta metropolitan area; therefore,

Abt could not report the growth in foreclosure rates for subprime and prime lenders.

16 HMDA reporters accounted for about 70 percent of Abt’s sample. Including all lenders in the Abt sample,

the subprime share of loans entering foreclosure increased from 3 percent in 1996 to 11 percent in 1999.

17 As Abt notes, “combined with the fact that it takes several years for newly originated loans to reach

foreclosure, it looks as if foreclosures by subprime lenders are becoming disproportionately high compared

to their overall share of lending activity.” (page 24) It should be noted that Abt included both home

purchase and refinance originations in its market share analysis.
8

loans entering foreclosure, compared with only 8 percent of non-subprime loans

entering foreclosure.18

• The median age of loans entering foreclosure is only two years for subprime loans,

compared to 4 years for non-subprime lenders.

• The share of foreclosures accounted for by subprime lenders has been growing rapidly

in Atlanta neighborhoods of all income levels.19 But like subprime lender originations,

the foreclosure share of subprime lenders was highest in very-low income

neighborhoods. Considering only foreclosures by HMDA reporters, subprime lenders

accounted for 36 percent of all foreclosures in very-low income neighborhoods during

1999, compared to subprime origination shares of 31 percent in 1997, 39 percent in

1997, and 34 percent in 1998.

• The share of foreclosures by subprime lenders has grown rapidly in neighborhoods of all

racial categories. The subprime share of foreclosures, like originations, is largest in

neighborhoods where minorities comprise a majority of the residents. Considering only

foreclosures by HMDA reporters, subprime lenders accounted for 36 percent of all

foreclosures in high-minority neighborhoods during 1999, compared to subprime

origination shares of 28 percent in 1997, 31 percent in 1997, and 26 percent in 1998.

CONCLUSIONS

HUD’s analysis of refinance mortgages originated in the Atlanta metropolitan area

during 1998 clearly demonstrates the exponential growth in subprime lending and its

disproportionate growth for lower-income and, particularly, minority homeowners and

communities. While this growth in subprime lending has expanded access to credit for many

borrowers with impaired or limited credit histories, these borrowers may also be vulnerable to

predatory lending practices.

Despite the progress made by prime lenders in reaching these markets, the growth of

subprime lending in both lower-income and minority communities strongly suggests that much

more can be done by both primary and secondary market participants to expand access to the

prime lending market.

 

18 However, Abt finds that foreclosures with high interest rate spreads have increased for all types of

lenders. It is also important to note that Abt had data on interest rate spreads for only a quarter of the listed

foreclosures.

19 Abt’s definition of neighborhoods was based on zip codes, rather than census tracts.
Figure 1

Growth in Subprime Refinance Lending

(Atlanta Metropolitan Area)

0

2,000

4,000

6,000

8,000

10,000

12,000

1993 1994 1995 1996 1997 1998

Subprime

Source: 1993-1998 HMDA Data

1993 1994 1995 1996 1997 1998

Subprime Mortgages 1,864 1,768 2,403 4,750 8,475 11,408
Figure 2

Subprime Share of Refinance Mortgages

by Neighborhood Income

(Atlanta Metropolitan Area)

4%

2% 2%

21%

11%

6%

0%

5%

10%

15%

20%

25%

Low-Income Tracts Moderate-Income Tracts Upper-Income Tracts

1993

1998

Note: Low-Income Tracts: Not More than 80%; Moderate-Income Tracts: 80-120%; Upper-Income Tracts: More than 120%
Figure 3

Subprime Share of Refinance Mortgages

by Neighborhood Race

(Atlanta Metropolitan Area)

2%

8%

33%

7%

0%

5%

10%

15%

20%

25%

30%

35%

Predominantly White

Tracts

Predominantly Black

Tracts

1993

1998

Note: Predominantly White Tracts: At least 85% White; Predominantly Black Tracts: At least 75% Black.
Subprime Share of 1998 Refinance Mortgages

by Neighborhood Race and Income

(Atlanta Metropolitan Area)

14%

9%

27%

41%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Low-Income Tracts Moderate-Income

Tracts

Predominantly White

Predominantly Black

Note: Predominantly White Tract: At least 85% White; Predominantly Black Tract: At least 75% Black.

Low-Income Tract: Not More than 80%; Moderate-Income Tract: 80-120%.
Figure 5

Subprime Share of 1998 Refinance Mortgages

by Income and Race of Borrower

(Atlanta Metropolitan Area)

19.4%

11.9%

19.7%

5.6%

6.9%

10.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Low

Income

Moderate

Income 

Upper

Income

Black White All 

Low Income

Moderate Income 

Upper Income

Black 

White 

All 

Borrower Income Borrower Race
Oth er Pr edom inantl y Bla ck N e igh b orh ood s

Oth er Su b prim e Ne igh b orhoods

Su b prim e and Pre domin ant ly Bl ack N ei ghbo rh oo ds

Source : 1998 HMDA Data

Note: Blacks accou nted fo r 3 0-75 percent of the po pulatio n in 20 of the "Other Sub prime Neighborhoods".

Atlanta Metropolitan Area Refinance Market

Predominantly Black Tracts

Subprime mortgag es accounted for at least

25 percent of all refinance mortg ag es in 101

(o r 21 percent) of th e 475 cen sus tracts in the

Atlanta, Georgia metropo litan are a r efinance

market.

Census trac ts w here Bla cks comprised at

least 75 percent of the population

(p redominantly b lack neighborhoods)

accounted for 74 o f th ese 101 sub prime

cen su s tr acts.

Predominantly black neig hborhood s

accounted for 7 pe rcent of all refinan ces

in the Atlanta, Georgia metropolitan area

but 22 percent of all sub p rime refinances.

Figure 6
Othe r Black Neighborhoods

Othe r Subprime Neighborhoods

Subprime a nd Blac k Neighborhoods

Source : 1998 HMDA Data

Atlanta Metropolitan Area Refinance Market

Black Percentage of Tract is At Least 30%

Subprime mortgag es accounted for at least

25 percent of all refinance mortg ag es in 101

(o r 21 percent) of th e 475 cen sus tracts in the

Atlanta, Georgia metropo litan are a r efinance

market.

Census trac ts w here Bla cks comprised at

least 30 percent of the population

(Black n eig hborho o ds) acco unted for 9 4

of these 101 subprime census tracts.

Black neighbo rhoods accounted for 13

percent of all refinances in the Atlanta,

Georgia metro politan ar ea but

33 percent of all subprime refinances.

Figure 7
Figure 8

Growth in Foreclosures Between 1996 and 1999

(Atlanta Metropolitan Area)

-15%

232%

-50%

0%

50%

100%

150%

200%

250%

Subprime Lenders Prime Lenders

Source: Abt Associates Inc. analyses of data from Atlanta Foreclosure Report.