Business news for the past decade has largely reflected good times on Wall Street, rising wages, and full employment.

But beneath the surface not everyone has shared in our national success. You would think if the economy is strong, people have jobs, and interest rates are generally low then there would be less need for subprime loans, the financing reserved for those with weak credit.

Yet numbers from the U.S. Department of Housing and Urban Development, says the Fannie Mae Foundation, show that between 1993 and 1998, "the dollar volume of subprime loans grew more than sevenfold, from $20 billion to $150 billion; and the number of subprime refinances grew almost 1,000 percent, from 80,000 loans to 790,000 loans. This growth compares to less than a 40 percent increase in prime lending for home purchases and a 2.5 percent increase in prime refinances during the same period."

The subprime market is not distributed evenly. "In 1998," says the Foundation, "high-cost subprime loans accounted for more than half of the home loans in black neighborhoods but less than 10 percent of the home loans in white areas. "

And, adds the Foundation:

"As many as 12 million U.S. households, fully one-fourth of all lower- income families, have no relationship with a bank, savings institution, credit union, or other mainstream financial service provider. One-third of these households are African American and 29 percent are Hispanic. "

None of this is especially surprising. Subprime loans are a financial reality and even with high rates and tough terms they may actually be a better alternative -- in some cases -- than other financing sources available to those with poor credit -- check cashers, payday lenders, and the like.

But it is remarkable that 12 million households -- perhaps 25 million people -- are untouched by the banking system. While most of us take ATMs, rising ATM fees, and closing bank branches for granted, the poor do not even bother with such options.

Among those without checking or savings accounts, nearly 23 percent say they avoid financial institutions because they "do not like dealing with banks." (See: Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Finances, Federal Reserve Bulletin, January, 2000).

To some extent there is a social reason for this: Those who are new to our country often distrust banks because they were associated with ruling groups back home. As a result, immigrant groups have often formed community savings associations that underwrite the purchase of homes and businesses. Examples include Kyes and Kehs (Korean), Stokvels (South African), Isusus (Nigerian), Pasanaqu (Bolivian), Hoi (Vietnamese), etc.

But another reason for a surplus of expensive loan options is that many communities have been "historically underserved" by banks, a cute term which means that banks have avoided poor neighborhoods. The situation is so woeful that a Community Reinvestment Act is necessary to force banks into underserved areas.

High fees for credit eat away at the ability of people to save and build assets. If subprime lending has grown by 1,000 percent in a five-year period, then a useful national goal should be to lower subprime activity.

Is there a reasonable way to reduce subprime lending? Here, at least, is one idea: Require subprime lenders to continually review loans. Borrowers with not more than one payment 30 days late during any 36-month period would be sent a letter in plain language from the lender advising them to refinance at lower rates and terms. In effect, each timely payment after three years would result in a monthly reminder to refinance.

Would subprime lenders favor such an arrangement? It would surely be good PR for them. Also, loan portfolios would become less risky because borrowers would have new reasons to make full and timely payments -- better credit and lower loan costs in the not-to-distant future.

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