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The Credit Boom and Bust in Lower-Income Markets |
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A new Brookings Institution, Metropolitan Policy Program study finds that the recent subprime implosion is only the tip of the iceberg when it comes to Americans borrowing more than they can manage. The study, written by Matt Fellowes, relies heavily on previously unavailable data, and finds that about one out of every three lower income borrowers falls behind on bill payments in a typical year, and over one out of every four now pays more than 40 percent of their income every year on debt payments. Findings: Lending in lower-income markets has radically transformed in recent decades, highlighted by a dramatic increase in the supply of credit. Total debt held by these households increased by 308 percent during this period, now adding up to over $481 billion. Most of this debt is for mortgages and home-related installment trades. Usage of credit in lower-income markets varies widely across the country, from a high in Boston (where 75 percent of borrowers in lower-income markets owed money in 2005) to a low in Las Vegas (where less than 40 percent did). Credit usage in lower-income markets increases as the credit scores of borrowers improves, when divorce rates and the proportion of immigrants decreases, and when the proportion of seniors increases. Total debt increases with rising credit scores of borrowers in lower-income markets, when the proportion of the uninsured and immigrants increases, and when mortgage lending policy becomes more stringent. Delinquency rates in lower-income markets increase as unemployment rates increase, and when the proportion of borrowers without health insurance increases.
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