The Subprime Crisis: How We Got There From Here

For most Americans, home ownership is the foundation of a successful
life. But that’s no longer true for millions who bought their homes with subprime mortgages, riskier loans made to people with less credit worthiness. Owning a home has also become a nightmare for the thousands who were the victims of predatory lending scams and who ended up with far higher mortgage payments than they could afford. Such predicaments, far more common in recent years, are the major reasons why about one in eleven mortgages were past due or in foreclosure by the end of March, according to a June report issued by the Mortgage Bankers Association.

The problems were years in the making. But churches were among the first to notice something was seriously amiss, said Patricia Zerega, acting director of the Corporate Social Responsibility Program of the Evangelical Lutheran Church. (The Evangelical Lutheran Church, like other religious institutions quoted in this article, are members of the Interfaith Center on Corporate Responsibility, which promotes social justice through responsible corporate and individual investment.)

“So many members of the church community are involved in anti-poverty
and housing programs,” Zerega said. “We began to hear complaints on the ground, from parishioners, years ago.” In the end, when too many government officials seemed oblivious, members of ICCR served as prophetic voices, speaking truth to power.

Subprime mortgages came about as a way to extend credit to lower-income people. They became more common after the passage in 1977 of the federal Community Reinvestment Act, which encouraged banks to lend money in their local communities. The current economic downturn may have given subprime mortgages a bad name, but they are necessary, even laudable, under some circumstances, Zerega stressed. After all, not everyone has perfect credit and many cannot come close to buying a house with a 20 percent down payment that would gain favorable interest rates. That’s why subprime mortgages can, when lent responsibly with reasonable terms, give lowincome applicants with less-than-spotless credit histories access to home ownership when conventional mortgages would be otherwise unavailable.

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