Mortgage Crisis Culprit: Affordable Homeownership

Some analysts have concluded that a push for home ownership may be responsible for causing the subprime mortgage crisis. Studies reveal that while minorities gained in terms of homeownership, they were also sold an inordinate portion of high-risk mortgage loan products.

According to an Associated Press analysis of 2007 Census Bureau data, minorities made big gains in homeownership since 1990.  Now, however, those gains are unraveling. The research reveals that when it comes to mortgages and the dream of homeownership, many more members of minorities-including single parents, senior citizens, and people of color-were able to buy homes within the past decade. But the problem is that being able to buy them doesn't automatically equate to being able to afford them, and about 30 percent of the people purchased them with risky subprime mortgages.

Debt ratios cause homeownership woes

As house prices soared and the push for homeownership-especially among minorities-increased, mortgage underwriting became lax, and the amount of debt related to homeownership soared. Nearly 10 million households now spend at least 38 percent of their pre-tax income on their mortgage payment, property taxes, and insurance, a portion of income that's increasingly difficult to manage. The numbers are significant because, for many years, lenders considered a threshold of only 30 percent to be appropriate and prudent. Anything at or above 38 percent was considered much too precarious.

An imbalance of debt to income is one of the main factors that can influence delinquencies and defaults. But during the past 10 years, underwriters have ignored those numbers and made millions of bad mortgages to people who should not have been approved because they couldn't reasonably afford to repay them. While only 15 percent of non-minority homeowners pay as much as 38 percent of their income on mortgage related expenses, a third of Hispanic homeowners and 25 percent of Asian and African American households, do.

Housing too costly

Lots of consumer advocacy groups encouraged mortgage brokers and loan officers to put minority families into subprime loans that didn't require proof of income in order to help them acquire housing. But many of those efforts have now backfired because those subprime mortgages cost much more than traditional prime loans. The surge in homeownership supported by toxic mortgages eventually left borrowers without their homes and in deep financial trouble.

The Associated Press analysis also showed that while about 12 percent of borrowers who had advanced academic degrees were spending 38 percent or more of their income on housing, about two or three times that number of people without high school or college diplomas have such high ratios of mortgage debt. Seniors also spend a much higher portion of their income on housing.

The research validates the notion that the nation needs tighter underwriting guidelines and stricter standards regarding mortgage loans that carry extra risk. It's important to provide equal housing opportunities to minorities, but the nation must do so with affordable homeownership, not by peddling American dreams that will soon turn into financial nightmares.