The Foreclosure Report

Subprime Borrowers 'Embracing Debt'

The Argus Leader reports on subprime lending. "In financial circles, they're called subprime borrowers. In many cases, they're the people just down the block. The couple who missed a credit card or college loan payment here and there through the years. They are average Americans with not-so-squeaky-clean credit histories who are turned down for decent-rate loans by banks."

"To meet the need of this growing class of borrower, subprime lenders are opening up shops at an alarming pace. There are now 22,000 payday lending outlets nationwide, and the number of money lenders increased 30 percent in Sioux Falls in two years."

"'We're such a low-wage state,' said Reynold Nesiba, an economist at Augustana College. 'There are so many people who are living paycheck to paycheck. That's why you see so many families with two or three jobs trying to make ends meet, so those types of lenders are definitely catering to meet that niche.'"

"There's also been a cultural change in what's considered a necessity. 'I don't think our parents 12 years ago would have ever considered taking out a home-equity loan to buy a new car,' Nesiba said. Today, a two-car household is considered a necessity."

"The housing fringe market also is thriving as the nation enjoys the highest number of homeowners in history. Home mortgages approved for low-income borrowers increased 75 percent from 1993 to 1998. During that same period, the subprime mortgage market ballooned by 880 percent."

"'The dynamic is true for virtually every sector in the fringe economy,' Howard Karger said. 'A customer's paying off a loan or purchasing a good or service outright is far less profitable than an ongoing financial relationship. Consequently, the profitability of the fringe economy lies in keeping customers continually enmeshed in an expensive financial system.'"

posted by Ben Jones @ 12:00 PM