Today’s NY Times highlights how women are hardest hit by the subprime crisis.
First, to clarify – a subprime loan is a loan that is offered at a higher interest rate, generally to individuals who would not qualify (or might not think they qualify) for traditional loans. Generally these loans have been meant for people with low credit scores or other factors that show they might be more likely to default on payments. The additional percentage points can add up to “tens of thousands of dollars worth of additional interest payment over the life of a loan”.
Traditionally, these types of loan companies preyed on poor people, much like high-interest credit card companies have, by taking advantage of people with poor credit and few options by charging enormous rates. (Interesting history of the “Ascendency of the Credit Card Industry” here)
Now it seems these financial vampires have found new prey as the NY Times reports,
“…even at high-income levels, mortgage brokers may assume that women are less confident to negotiate or shop around, and so offer them higher rates. A survey in 2006 by Prudential Financial found that two-thirds of women graded themselves at C or lower in their knowledge of financial services or products.
Ms. McIntyre, who bought her house for $125,000 in April 2006, is one of those women. When she bought the house, using two subprime loans — adjustable loans that started at 8.35 percent and 13.25 percent — the lender insisted that she use her savings to pay down a car loan, a common demand on subprime loans. After she lost her job, she had no reserve to pay her mortgage.
“I feel they had me from the start,” Ms. McIntyre said. “I was eligible for money as a first-time home buyer and a state employee. Nobody told me about any of these.”
What this means for women is that we must educate ourselves about our finances. We must hold ourselves responsible for learning how to invest, how to plan for retirement, and we must take the time to research when we take a large financial step such as buying a house.
Mothers and fathers must teach their daughters this information, and impress upon them the importance not only of financial independence but good long-term financial planning. As a society we should look at creating financially-savvy women as in everyone’s best interest – as our mothers, our life-partners, and our business colleagues.