Foreclosures rising for subprime borrowers

There has been a steady increase in the number of homeowners with a subprime mortgage who lose their homes to foreclosure and this will?increase over the next few years, according to a recent study.

A release from the Center for Responsible Lending (CRL), a nonprofit, nonpartisan research and policy organization advocating for homeowners and family wealth, revealed three key findings:

Obviously, foreclosures are more common for subprime borrowers. They have already been established as less credit worthy and as a result are charged higher rates, higher closing costs adding to the loan balance, which increases the odds that the borrower will have problems.

Another factor is that lenders often load up subprime loans with high-risk provisions, setting up borrowers to fail. Some of these include: adjustable interest rates, balloon payments, prepayment penalties, and limited documentation requirements.

The problem is that the lenders themselves do not hold the loans. They sell them in a bundle on the secondary market. As a result, they have very little concern for the outcome of the borrowers. The industry as a whole makes more money putting borrowers into larger loans on more expensive properties and it has pushed borrowers to the edge of affordability. Any change in income status or emergency needs that arise and there is no cushion to absorb the blow.

Popularity: 3% [?]