Subprime Mortgages Linked To Foreclosures
Stop me if you've heard this before.
The Boston Globe reported March 5, 2007 that risky loans made to home buyers with less than spectacular credit are to blame for the spike in foreclosure filings in Massachusetts.
It seems like there is a story about sub-prime lending and the resulting foreclosures in a newspaper somewhere in the U.S. almost every day.
"Subprime mortgages were lauded for helping more Americans than ever buy homes during the housing boom earlier in the decade. But four years after their popularity took off, the loans are backfiring. More homeowners are no longer able to afford their payments, which typically rise sharply two years into the loan. In 2006, lenders filed 19,487 foreclosure notices against Massachusetts homeowners, surpassing the record high of 17,000 filings in 1991, during the state's severe recession."
What's interesting about all these articles is that the reporters usually provide a vague definition of sub-prime loans, such as "mortgages tailored to home buyers with less-than-sterling credit ..."
What does that mean? Is it potential home buyers with credit scores under 650? Maybe it's scores under 620? How about scores under 600?
What role do interest-only and adjustable-rate mortgages play in the foreclosure explosion? How about employment history, personal savings, down payments and income? Do people who receive 100 percent financing face foreclosure more than other borrowers?
My guess is that an easy definition of the typical person facing foreclosure is not possible.
Comments