Report Reveals 2.2 Million Borrowers Face Foreclosure on Subprime Home Loans
Source: Center for Responsible Lending

A new CRL study reveals that millions of American households will lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market.

The “Losing Ground” study is the first comprehensive, nationwide review of millions of subprime mortgages originated from 1998 through the third quarter of 2006. CRL finds that despite low interest rates and a favorable economic environment during the past several years, the subprime market has experienced high foreclosure rates, and we project that one out of five (19.4%) subprime loans issued during 2005-2006 will fail.

The report discusses a number of factors that drive subprime foreclosures—these include adjustable rate mortgages with steep built-in rate and payment increases, prepayment penalties, limited income documentation, and no escrow for taxes and insurance. We also determine that these features cause a higher risk of default regardless of the borrower’s credit score.

Our study also finds that recent high appreciation in many areas has masked problems in the subprime market, and that the cooling housing market will cause failure rates to rise sharply in many major markets. California, Arizona, Nevada, and greater Washington DC will be especially hard hit. Also in this report, we project lifetime foreclosure rates for 2006-originated subprime loans in each MSA in the United States.

+ Executive Summary (PDF; 385 KB)
+ Full Report (PDF; 687 KB)

This entry was posted on Tuesday, December 19th, 2006 at 8:23 pm and is filed under Business and economics, Consumer issues, Housing and real estate. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.