SPARTA, Wis. – An increasing number of people in Wisconsin are seeking mortgage financing or refinancing from subprime lenders, according to a soon-to-be-released report, and that has credit unions in the state implementing products targeting these borrowers. Fairness in Rural Lending, a nonprofit organization based in Sparta, Wisconsin, recently provided some snapshots of mortgage lending trends in the state that point to this trend. The group is using Federal Home Mortgage Disclosure Act data to compare market share between subprime and conventional prime lenders in the state's metro and rural counties. Subprime lenders are finance or mortgage companies who target homeowners with less-than-perfect credit with high-cost mortgage servicing products, often at rates double that charged to prime borrowers. Here's a look at some loan requests submitted to subprime lenders between 2002 and 2003, as analyzed by Fairness in Rural Lending: * Milwaukee County: Applications by minorities more than doubled – from 2,656 applications in 2002 to 6,391 in 2003, a rise of more than 58%. Financing requests from low-to-moderate income applicants were up by nearly 24%, from 8,473 applications in 2002 to 11,116 in 2003. * Dane County: Applications by minorities more than tripled – from 132 applications in 2002 to 415 in 2003, a rise of more than 214%. Financing requests from low-to-moderate income applicants were up by nearly 63%, from 1,559 applications in 2002 to 2,533 in 2003. * La Crosse County: Applications by residents were up by nearly 71% – from 622 applications in 2002 to 1,068 in 2003. Financing requests from low-to-moderate income applicants were up by nearly 35%, from 297 applications in 2002 to 400 in 2003. * Rural residents: Applications by rural residents were up by nearly 37% – from 19,579 applications in 2002 to 26,554 in 2003. Financing requests from rural low-to-moderate income applicants were up by nearly 55%, from 7,805 applications in 2002 to 12,093 in 2003. Hubert van Tol, executive director with Fairness in Rural Lending, said the report also shows an increasing number of middle- and upper-income applicants requesting financing from subprime lenders. "The recent dramatic increase in applications to high-rate lenders underscores the need for lenders to do a better job in reaching out to these often underserved populations," said Marv Kamp, analyst for the report. "Why people go to the subprime lenders is beyond me," said Richard Koenig, president and CEO of Milwaukee Metropolitan Credit Union. "We have tried to reach out, to give people that second chance. We try to educate them: `Rebuild your credit. Don't be spontaneous.' That has been fairly successful. We have always been dominant in the inner city of Milwaukee. We basically have been taking care of that group where homes don't cost more than $50,000." Koenig suggested that the majority of those people who are going to subprime lenders might not be financially educated, perhaps are already embarrassed with past credit problems or just have to fill an immediate need. He said the credit union has "Back to the Basics" programs, tries to educate with articles in its newsletter and fliers in the lobby and takes the time with anyone that needs to learn something such as how to balance a checkbook. Guardian Credit Union in West Allis has gotten more aggressive with products designed to combat subprime lenders. Steve Wesson, president and CEO, says the credit union offers opportunities to re-establish a financial history with lower-credit products such as credit and debit cards. "We've increased the percentage of mortgages to groups that go to subprime lenders by 14% over last year alone." He said Guardian offers an adjustable rate mortgage with lower fees than subprime lenders and a lower downpayment so those without money can get into their first home. Weston said the credit union is developing its own subprime auto lending for next year. "We're looking at not only risk-based lending – the rate might be 13% to 15% compared to 34% to 50% elsewhere – but less downpayment with financial education. A lot of people just don't understand what they are paying." He said he is seeing two groups susceptible to the attraction of subprime lending. One is people new to the community or who have had problems in the past. The other group is made up of those who are losing long-term manufacturing jobs as plants close or move away. "They get in a crunch for money. Many are living paycheck to paycheck and have nothing in reserves. We offer savings products to try to encourage savings." Weston suggested that if all the 40-something credit unions in the Milwaukee area would work together, "I think we could get a lot further than individual attempts. But there are risks involved with serving the underserved. There are more losses and you have to prepare for that. But if we are going to serve the underserved, we are going to have to do that." Analyst Kamp said he had only anecdotal evidence to suggest why applications are increasing to subprime lenders. "Since 1995 we have been tracking subprime lending. It used to be barely on the radar screen. What we have seen since then is that more and more middle and upper-income people are applying with subprime lenders. There could be many reasons: high levels of consumer debt, general economic conditions … there are lots of households stressed out there ..and debt consolidation. The vast majority is in refinance. That would indicate there is a lot of consolidation going on." Kamp says the subprime lenders' advertising make the quick, easy, no-hassle loans very attractive. "Consumers need to be more aware of what they are getting into," he said. Kamp suggests financial institutions need to work with community organizations to get the word out on financial literacy and to provide people with a strategic plan for doing credit repair. A lot of applications are denied because of bad credit history. Lenders also need to do targeted advertising. Kamp noted the high rate of application rejections by subprime lenders. For all Wisconsin metropolitan loans, the rejection rate by subprime lenders was 41.4% in 2002 and 46.2% in 2003. "What we think is happening is that these lenders are skimming the cream. They may look at 1,000 applications and make 10 or 20 loans. It doesn't cost them to look at applications and determine which loans they can make money off." Just last month, the Wisconsin Credit Union League signed an agreement with Filene Research Institute to make the services of Wisconsin's credit unions available to more residents who might otherwise be preyed upon by predatory lenders and high-fee financial services companies. -

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