Daily News and Information for the Mortgage Loan Originator
Group Says 2.2 Million Borrowers Face Foreclosure on Subprime Loans
Wednesday, December 27, 2006
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WASHINGTON, D.C. – 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, DC will be especially hard hit.
"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 underthe Home Mortgage Disclosure Act (HMDA). "Losing Ground" estimates that 8 to10 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 pressure.
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.
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Minority Subprime Borrowers Face Higher Prepayment Penalties People with subprime home loans who live in minority neighborhoods face 35 percent greater odds of being saddled with prepayment penalties than borrowers living in predominantly white neighborhoods, according to new research from the Center for Responsible Lending (CRL).
Women Are More Likely To Receive Subprime Loans Women are more likely to receive subprime home mortgage than men and these higher rates of subprime lending make it harder for households headed by women to build wealth through homeownership. In 2005, about a third of women took out mortgages with interest rates over 7.66 percent (well above the average prime mortgage rate of 5.87 percent) compared to about a quarter of men, according to a new study released today by the Consumer Federation of America.
More Homeowners Falling Behind On Mortgage Payments The delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 4.67 percent of all loans outstanding in the third quarter of 2006 on a seasonally adjusted basis, up 28 basis points from the second quarter, and up 23 basis points from one year ago, according to the MBA's National Delinquency Survey.
U.S. Foreclosures Rise 35 Percent From One Year Earlier According to a national foreclosure tracking service, foreclosures decreased 9 percent from the previous month but increased 35 percent one year earlier. Colorado reclaimed the top foreclosure spot from Nevada.
$1 Trillion in Adjustables Face a 25% Increase in Payments This Year Economist John Tuccillo, the former chief economist for the National Association of Realtors recently addressed the Wisconsin Bankers Association and said that over $1 trillion of adjustable mortgages will reset to higher rates in 2007 and stated that those who do not refinance could see payments increase by 25 percent. Tuccillo also warned that how these homeowners cope with the payment increase could trickle through the economy.
Judge: Jerry Seinfeld Must Pay Realtor Fee Comedian Jerry Seinfeld was ordered by a New York Judge to pay his real estate agent her commission after he and his wife refused to do so. The Seinfeld's claimed that the agent was unavailable to show the property to the couple on a particular Saturday and therefore forfeited her commission.
More Than 1.2 Million Foreclosures Reported in 2006 According to a national foreclosure tracking service more than 1.2 million foreclosure filings were reported nationwide during the year, up 42 percent from 2005 and a foreclosure rate of one foreclosure filing for every 92 U.S. households.
Realtors Seek To Protect Borrowers From Predatory Lending The National Association of Realtors told a Senate panel that NAR supports stronger anti-predatory lending legislation and more consumer education on nontraditional mortgage products.
Federal Regulators Ask Banks To Evaluate Subprime Lending Practices The subprime mortgage business is starting to have the whiff of the troubled airline industry. At least 20 U.S. subprime lenders in recent months have closed, retrenched, filed for bankruptcy, delayed earnings reports, taken financial hits, or been sold or downgraded amid a rise in delinquency rates. And federal regulators have noticed.
New Century Financial Appears to be Circling the Drain New Century Financial appears to be the latest casualty in the constricting subprime market place. Effective Thursday, March 8th New Century announced they were no longer accepting new applications.
Subprime Mess May Force National Licensing For Brokers After the requisite finger-pointing and blame-laying, Congress and federal regulators are moving toward some fixes to problems in the subprime mortgage market. Among possible outcomes is the requirement that mortgage brokers be licensed at the federal level.
MBA Blames Brokers For Foreclosures – Perhaps They Should Look In The Mirror In a recent speech, John M. Robbins, the chairman of the Mortgage Bankers Association blamed mortgage brokers for the spike in foreclosures related to bad subprime loans, but conveniently overlooked the role many lenders played.
