WASHINGTON – Subprime mortgage rates are not only inconsistent throughout the U.S., new data show a significant variation exists in the pricing of home refinance loans and home improvement loans between regions and localities. Results of a newly released study from the Consumer Federation of America show homeowners living in the southwestern or southeastern states are much more likely to refinance with higher interest rate subprime loans that are those who live in the Pacific or New England regions. In fact, according to Subprime Cities: Patterns of Geographic Disparity in Subprime Lending, many of the cities in the Gulf Coast affected by Hurricane Katrina have among the highest levels of subprime lending. Among the study's key findings, the share of refinance lending that is subprime varies from 10.5% in the Pacific states to 27.4% in the Southwest states. In 2004, these loans generally carried an interest rate of 8% or higher. What's more, regional variation was even higher for the most expensive segments of subprime loans – that is loans with interest rates generally above 10%. Homeowners in the Southwest were more than four times more likely to receive these highest cost subprime loans than homeowners in the Pacific states. There is even greater subprime refinance variation between Metropolitan Statistical Areas (MSAs). In the five MSAs with the smallest share of subprime refinance lending, fewer than 3% of borrowers receive subprime loans. In comparison, in the five MSAs with the lower share of prime refinance lending, nearly 40% of refinance mortgages in these markets are subprime. Moreover, of the 30 MSAs with the highest share of subprime refinance loans, 80% are in the Southeast or Southwest. As for home improvement lending, the study found that borrowers in the Southeast and Midwest are at least twice as likely to receive subprime home improvement loans as borrowers in the Pacific. In addition, there are 25 MSAs where half of home improvement borrowers are receiving subprime loans and eight MSAs where fewer than one in 10 borrowers receive subprime home improvement loans. In the five markets with the highest density of subprime home improvement lending, two-thirds of the borrowers receive subprime loans – Jackson, Miss.; Memphis, Tenn.-Arkansas-Mississippi, Pittsfield, Mass.; Mobile and Tuscaloosa, Ala. The CFA study also found the prevalence of racial disparities among subprime borrowers – African-American and Hispanic homeowners are more likely to receive subprime loans than other racial and ethnic groups. More than one-third of African-Americans received subprime refinance loans compared to 15.7% of Latino borrowers and 12.1% of white borrowers. In addition, African-American borrowers were nearly three times as likely than white to receive a subprime loan, and Latinos were 30%. "The notable pricing variation found by this study raises important concerns about whether the higher interest rates charged by subprime lenders can be fully explained solely as a function of the additional risks they bear," the CFA states. The CFA said the research "underscores the value and utility of HMDA data as a tool for identifying geographies with unusually high levels of subprime lending." The association further stated that it "hopes this first systemic look at subprime pricing patterns for metropolitan areas across the nation will encourage others to obtain the soon to be released HMDA data and to undertake their own research to analyze pricing and other lending patterns both at an industry-wide level and for individual lenders." CFA offered that public disclosures of home loan pricing data provided by HMDA "has great potential to help transform the mortgage market" in the following ways: * stimulate greater oversight by regulators and other enforcement officials; * adoption of strong consumer protections to curb predatory lending; * make the subprime market more competitive; * increase accountability for lenders; * increased understanding of local credit markets and community credit needs. -

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