Bust for Subprime Loans?
Almost 20% of all subprime loans funded over the past two years will wind up in foreclosure, according to a new report issued by the Center for Responsible Lending.
CRL president Mike Calhoun said that when refinancings of troubled loans are factored into the equation, one-third of all B&C loans could go bust.
According to figures compiled by National Mortgage News and the Quarterly Data Report, mortgage bankers funded $807 billion in subprime loans in 2005 and were on track to fund $750 billion in 2006.
During a press conference announcing its findings, the nonprofit chastised mortgage bankers for qualifying borrowers - especially minorities - using low teaser rates (instead of the fully indexed rate).
Analyzing six million subprime loans funded since 1998, CRL said foreclosures could eventually cost consumers $164 billion in "lost home equity." The Mortgage Bankers Association immediately criticized the group's findings, saying CRL's numbers are cumulative and ignore the potential for delinquent loans to be worked out prior to foreclosure.
"Their projections are incredibly pessimistic," said MBA senior economist Mike Frantantoni.
At the end of the third quarter just 3.8% of subprime loans were in foreclosure, according to MBA. One in four loans in the foreclosure category are cured prior to actually being foreclosed upon, MBA noted.
The American Financial Services Association also questioned CFL's findings noting that "based upon methodology deficiencies in the group's previous reports, industry observers have reason to question" the group's findings.
AFSA noted that lenders typically lose money on foreclosures "and put a considerable amount of effort into working with borrowers to avoid them."
Pat Vredevoogd, president elect of the National Association of Realtors, participated with CRL during the press conference, but NAR did not fund the new report.
"Foreclosures are not only a disaster for families but for communities," NAR said in a statement. "Problematic loans are often made in concentrated areas." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com