UNC Study Rekindles the Dream

The emergence of subprime lending in the 1990s and 2000s steered many minority and low-income borrowers toward highly volatile loans. These unsustainable lending practices contributed to the boom and the subsequent bust in the housing market, resulting in an aversion to low-income home loans. Against this backdrop, the University of North Carolina’s Center for Community Capital conducted a study of mortgages provided to 46,000 low-income households, and they found that neither one’s low-income or minority status is to blame. “When done right,” says Roberto Quercia, director of the center, “lending to low-income, low-wealth families who are not traditional borrowers actually works.”

It works, he says, when the loans are “tried and true” 30-year, fixed rate mortgages based on documented income; it does not work when the loans have high-risk caveats – e.g., teaser rates, balloon payments, high interest rates, and prepayment penalties. “This is not rocket science,” Quercia says. “How good or bad the mortgage is amplifies whatever risk you have as a borrower.”

The results of the study have been compiled in a book called “Regaining the Dream: How to Renew the Promise of Home Ownership for America’s Working Families.” The book shows how this group of low-income homeowners weathered the crisis with a 7.6 percent delinquency rate and a 4.2 percent foreclosure rate, both below the national average. “The lesson learned from the book,” Quercia says, “is don’t throw the baby out with the bathwater.” The market of the future is going to look a lot like the 46,000 people studied – borrowers of color and immigrants, both first and second generation, who have lower incomes and lower wealth. Therefore it would be wise, he says, to keep effective programs in place and expand on those that truly benefit low-income households.