The worst foreclosure crisis in the modern mortgage market

Discussion in 'Wall St. News' started by isaac000, Dec 19, 2006.

  1. Report Reveals 2.2 Million Borrowers Face Foreclosure on Subprime Home Loans

    WASHINGTON, Dec. 19 /PRNewswire/ -- A new Center for Responsible Lending (CRL) study reveals that 2.2 million American households will lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market. Titled, "Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners," the CRL study is the first comprehensive, nationwide review of millions of subprime mortgages originated from 1998 through the third quarter of 2006.

    CRL's research suggests that risky lending practices have triggered the worst foreclosure crisis in the modern mortgage market, projecting that one out of five (19.4%) subprime loans issued during 2005-2006 will fail.

    "In the subprime sector, the most vulnerable borrowers are sold the most dangerous loans," said Mike Calhoun, CRL president. "At $164 billion, the losses from foreclosures could pay for the college educations of four million kids. For families who lose their houses because their loans fail, savings and economic security will be way out of reach."

    The report discusses a number of factors that drive subprime foreclosures -- in the majority of cases, borrowers receive high-risk loan features, packed into an adjustable rate mortgage with a low start rate, that is approved without considering whether the homeowner can afford to pay the loan after the rate rises.

    Adjustable rate mortgages known as 2/28s (or "exploding ARMs") operate with an initial "teaser" rate for two years, followed by a steep payment increase. And, regardless of a borrower's credit history, the almost one- quarter of American families who get subprime loans find them crammed with other high-risk terms such as prepayment penalties, limited income documentation, and no escrow for property taxes and hazard insurance.

    In recent years, high appreciation in many areas has masked problems in the subprime market. CRL projects that the cooling housing market, will cause failure rates to rise sharply in many major markets. California, Arizona, Nevada, and greater Washington, D.C. will be especially hard hit. See a detailed metropolitan statistical area (MSA) chart at

    "Foreclosures can be a disaster not only for the family but for the community as well," said Pat Vredevoogd Combs, president of National Association of Realtors. "When one home forecloses, the surrounding houses lose value, too. By threatening neighborhood stability, foreclosures hurt everyone."

    Trouble in the overall subprime market spells trouble for African American and Latino families across the country. Although white families receive more subprime loans overall, African Americans and Latinos receive a higher proportion of high-cost loans than any other group, a fact consistently verified annually by data lenders submit under the Home Mortgage Disclosure Act (HMDA). "Losing Ground" estimates that 8 to 10 percent of all African American and Latino families who received a home loan in 2005 will be affected by subprime foreclosures.

    "Homeownership rates for minorities are up but so, too, is the cost of that homeownership," said Wade Henderson, executive director of Leadership Conference on Civil Rights. "We need rules to curb predatory lenders, but we also need prime lenders to step up for this expanding market of borrowers."

    Policymakers and regulators can and must act to stem the tide of home failures in the subprime market. To accomplish this CRL recommends that:

    * Lenders ensure that every borrower is able to repay his or her loan
    without resorting to selling their property or refinancing under

    * All parties involved operate in good faith and fair dealing to ensure a
    successful outcome.

    * Lenders, local governments, and community groups implement strong
    programs to help troubled borrowers keep their homes.

    Homeowners work hard to provide the economic security and benefits of ownership to their families. Changes must be made in the subprime market so that owning a home is fair, affordable and -- most important -- sustainable.
  2. This sucks. This is actually a prime example of conflict of interest, since mortgage brokers get paid commssions, big ones, for closing these loans. Personally, I think they share the blame with the homeowners.
  3. Most of those subprime mortgages were based on fraudulent information. And the house of cards comes tumbling down.........oh wait, we forget the printing machines feeding the stock market. buy the dips! :D
  4. fatrat


    Hehe. I used the 2/28s to flip properties in 03-04 1 at a time as owner occupied because they almost always beat the fixed rate mortgage products, but there was always a 5k prepay penalty tacked on.

    Those loans are dangerous, but they generall have provisions to lock how fast the payment changes. Mine generally had the payment change every 6 months, and they could only go upto a certain level -- they were capped at around 10-11% back in '04.

    I stopped doing this in Oct '05, because buyers started slowing down. I decided never to attempt real estate again after that last house, because I was scared I was overleveraged and was going to wipe out a good chunk of profits. I am lucky, unlike that guy over at
  5. :eek: :D
  6. NYK007


    Hi guys,

    Nice article, I have read this. Thanks for the article.

    Home Loans
  7. AK100


    Anything to get your crappy link in.