Approximately 11 percent of all mortgages in the national capital region are subprime mortgages, or loans given to people with poor credit, according to a report from the Urban Institute.
Across the nation, only 3 percent of money lent as mortgages is in the subprime sector. The unusually high percentage of such loans in the area could pose a particular risk as a flattening housing market and rising interest rates make it harder for some homeowners to keep pace with their payments.
The study was based on data from 2004, the most recent data available.
Concerns over defaults on these types of mortgages contributed to Wall Street’s slide over the last week after loan defaults forced dozens of subprime lenders to close their doors.
Homes forced onto the market due to foreclosure could further undermine an already-soft housing market in the D.C. area where inventory is high and houses are staying on the market longer.
Increased foreclosures on subprime loans are also a disincentive for lenders to give mortgages to people with poor credit or little credit history. This might make it particularly difficult to fill new developments, like those in up-and-coming areas such as Petworth or Columbia Heights, which are looking to attract younger people with less financial history.
“These products are making home ownership a possibility for some folks who are unable to obtain a [traditional] mortgage,” said Peter Tatian, a senior research associate at the Urban Institute. He said many minorities in the area, especially blacks and Hispanics, would be unable to buy homes without these instruments.
People need to be educated on other mortgages that do not require subprime interests rates, but are available to people with poor credit to prevent real damage to the housing market, Tatian said.
“It doesn’t have to have a big impact on the market if we can find other ways to get people into loans that are suitable for them,” he said.
