Typically, subprime loans are for persons with blemished or limited credit histories. The loans carry a higher rate of interest than prime loans to compensate for increased credit risk.
Many have questioned why minorities appear to be over-represented in the subprime lending market. Studies reveal that even in upper-income African-American neighborhoods one is one-and-a-half times as likely to have a subprime loan than persons in low-income white neighborhoods. In neighborhoods where Hispanics comprise at least 80 percent of the population, they were 1.5 times as likely than the nation as a whole to have a subprime mortgage loan.
Some allege this disparity to be attributed to subprime lenders purposefully marketing to African-American communities-what some have called reverse redlining. They allege lenders will provide loans to these communities, but at a higher cost and with less favorable conditions.
Some facts about subprime lenders
* Home refinance loans account for higher shares of subprime lenders' total origination than prime lenders' originations
* Subprime lenders originate a larger percentage of their total originations in predominately black census tracts than prime lenders
* Subprime lenders are more likely to have terms like "consumer," "finance," and "acceptance" in their lender names
Source: U.S. Department of Housing and Urban Development
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