'Red' States More at Fault Over Sub Prime Loans?

Bryan RDecember 7th, 2007
By: Bryan R

At this point, we’re all pretty familiar with the sub prime mortgage mess. It’s a sad state of affairs causing financial stress to homeowners and non-homeowners alike. It may even threaten the U.S. and global economy. But despite all the press coverage, a few questions remain…

For example, who’s taking out these loans? What kind of people are they? And where do they live?

The answer to this query can be found on the Wall Street Journal's website where an excellent tool helps break down this fiscal nightmare. The prime question is if there are certain parts of the U.S. that seem to be plagued with overly-eager-to-own-a-home, shortsighted consumers.

thumb-sub-prime-red-blue.jpg

Top: Home loan default rate
Bottom: Voting demograpics

Looking at the upper map of the U.S. (source: Wall Street Journal Website), it's evident that every state of the union has households taking out these high-rate loans. Specifically, this color-coded map shows what percentage of all home loans are of a high-rate nature. From a quick glance at the map, it’s pretty clear that the southern states (i.e. “red” states), including Texas, Oklahoma, and parts of the southwest have a higher proportion of these sub prime loanees than other areas of the U.S.. Though we’re all, as states, a little bit guilty of taking out these questionable loans, some states are more guilty than others. Looking at the worst offenders, those above 30%, we see that 77% of them were “red” states during the 2004 elections (compare the first map to the now famous red-blue 2004 election results map below). In other words, a larger number of people in these states have taken out sub-prime loans.

To be fair, there are a handful of “blue” states such as Illinois, Michigan, and Maryland that also do poorly, but they are in the minority. If instead we consider the high interest loan volume percentages (check out the WSJ link for this map) the story changes a little as some states like California and New York come into play (both states with higher average home prices than The South and logically requiring larger volumes of money). But, a higher proportion of the spendthrift states are still in red country, and Florida is in a league of its own.

According to the BBC, in the beginning of December President Bush announced a package designed to help those impacted by the mortgage crisis. Specifically, his program will allow the federal government to intervene on the behalf of the troubled homeowner and freeze sub prime rates for a five-year period.

Critics suggest that the plan may be too late and raises the question of whether federal meddling will sit well with conservatives who philosophically bristle at such actions. Or perhaps because, disproportionately, it's their homes on the line they may be more willing to accept, or even demand, a little government intervention this time around.

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