Jackson Jambalaya

The Mississippi Business Journal reported that Mississippi leads the nation in subprime mortgage lending according to a study by the Mississippi Economic Policy Council (http://www.mepconline.org/images/admin/spotedit/attach/4/Subprime_Mortgage_Lending_Fact_Sheet.pdf):

Almost 40% of all homebuyers in Mississippi receive mortgages from sub-prime lenders, a rate higher than in any other state. Additionally, homebuyers buying in predominantly African American communities are more likely to receive a sub-prime mortgage, a new study shows.
An analysis by the Mississippi Economic Policy Center also finds that sub-prime lending to homeowners in Mississippi increased dramatically over the last 10 years.......

The study examined data made available through the Home Mortgage Disclosure Act and the U.S. Census Bureau to analyze mortgage loans from 1997 to 2004. Among the findings:
o Nearly four in 10 conventional home loans in Mississippi in 2005 were sub-prime, nearly double the national average.
o Fifty-six of Mississippi's 82 counties had sub-prime lending rates of more than 40%.
o Nearly two-thirds of conventional home loans made to African Americans were sub-prime.
....."
http://www.msbusiness.com/article.cfm?ID=4857

I've seen several other studies and there is no question that Mississippi is one of the leading states in terms of subprime mortgages and mortgage delinquencies as well. However, there are several things to keep in mind about this so-called study.

This study, along with similar ones, has no access to credit scores due to privacy laws. The mortgage lending industry is primarily credit score driven. What type of program a borrower qualifies for is usually determined by the credit score. If a borrower wants to qualify for 100% mortgage with no down payment, then a certain minimum credit score is required by all lenders. If a borrower has a credit score that is considered to be not that good, such as below 600 in most cases, then the borrower can usually qualify for only subprime mortgages, which carry a higher rate to reflect the higher risk.

What would validate the study would be if there was access to the credit scores. If the credit scores of the average borrower are lower, than the figure of %40 would not be a surprise. If the credit scores are higher, then it could probably be concluded that predatory lending has occurred.

Another factor the study ignores is licensing. The study covers 1997-2004. Until 1999, there was no licensure in Mississippi for mortgage brokers. It was still a couple of years before the appropriate department could be created, guidelines issued, personnel hired, and audits of mortgage companies conducted.

Before Mississippi required a license to be a mortgage broker , anyone could be one. I personally know of cases where brokers were working out of their homes. One ran his shop out of the back of a dry cleaning store he owned, one ran it out of his butcher shop (no lie), and another was a cab driver who was doing mortgages on the side. There was no continuing education requirements nor minimum knowledge required. There was no requirement for a minimum level of experience. Anyone that wanted to be a mortgage broker could be one provided the lenders would allow him to submit loans. Too often, quick buck artists would enter the industry that had minimal, if any, experience, would sign up with only subprime lenders, and rack up the fees by putting even borrowers with good credit in subprime mortgages. Licensure forced many of them to leave the industry.

It is without question that alot of abusive practices occurred before licensure. While such practices still take place, licensure has cleaned up the mortgage industry in Mississippi substantially. There were more than a few quick buck artists in the pasts who have since either left the industry or have been prosecuted by the authorities.

Mississippi has also had a problem with mortgage fraud. This is a list of all the mortgage fraud cases in the last several years: http://www.mortgagefraudblog.com/index.php/weblog/C41/.
Typically these brokers that commit such fraud rip off both the lenders and the borrowers. Most of the cases listed that did not involve flipping, were from the pre-licensure era, which supports my contention that the reason the %40 figure might be high and not valid anymore is due to the time period covered by the study.

Another factor to be considered is that in a poorer state, the level of education is lower, and that includes knowledge about sound financial practices. People too often pay rent with cash or to a private individual. Most "prime" lenders require either 12 months of cancelled checks or a line on the credit report for rent or mortgage payments. A verfication of rent is never accepted from an individual due to the higher risk of fraud. Since too often people pay rent with cash, they are not able to show a capability of making a housing payment. This means that they usually qualify for only a subprime mortgage.

I'm not saying this study is completely invalid. However, there are some flaws in it and several factors that were not explained properly. Fannie Mae and Freddie Mac have been very aggressive the last three years in offering low (if any) down payment "my community" programs to borrowers through mortgage companies that allowed lower credit scores and mortgage insurance premiums. These programs, along with continued enforcement of the licensure laws and the current shakeout in the subprime mortgage lending industry (resulting in a tightening of underwriting practices) means that the percentage of Mississippians who have supbrime mortgages will probably decline in the future.

Update:
This is a pretty ignorant statement on MEPC Website: "While not all subprime loans are predatory, all predatory loans are subprime."

Oh really? A mortgage company can gouge a borrower for fees just as easily on a prime loan as a supbrime one, especially on refinances where the closing costs are rolled into the loan. This tells me that no one who worked on this "study" has a working knowledge of the mortgage industry. I know plenty of local ethical mortgage professionals who could have proofread their study if they had been asked to do so. Apparently even that limited form of peer review is not used in this particular ivory tower.

By the way, after looking through the MEPC website, no email addresses are given. Guess they don't want to be bothered after they issue their proclamations from the ivory tower.