Fed's Gramlich Says Subprime Lending a Societal Plus

WASHINGTON - A relatively high rate of delinquencies on subprime mortgages raises warning flags, but expanding credit to those who might not otherwise be able to buy a home appears overall to benefit society, Federal Reserve Board Governor Edward Gramlich said on Friday.

"The increased availability of subprime mortgage credit has created new opportunities for homeownership and has allowed previously credit-constrained homeowners to borrow against the equity in their homes to meet a variety of needs," Gramlich told a meeting sponsored by the Financial Services Roundtable in Chicago.

"At the same time, increased subprime lending has been associated with higher levels of delinquency, foreclosure, and, in some cases, abusive lending practices," he added, according to a text of his remarks made available in Washington.

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