More Borrowers Falling Behind

(Subprime loans became a popular financing option for many homeowners across the United States, especially during the housing boom of the past few years. )

These types of loans allow people to get into homes that would normally have trouble getting into a traditional loan due to a sketchy credit history or some other financial problem.

But as the housing market continues to cool, we are seeing many homeowners with these so-called “risky” loans struggling to make their monthly mortgage payments.

A December 5, 2006 article by Ruth Simon and James R. Hagerty of The Wall Street Journal, “More borrowers with risky loans are falling behind,” discusses how delinquencies are beginning to mount among borrowers with subprime loans.

“Americans who have stretched themselves financially to buy a home or refinance a mortgage have been falling behind on their loan payments at an unexpectedly rapid pace.”

“The surge in mortgage delinquencies in the past few months is squeezing lenders and unsettling investors world-wide in the $10 trillion U.S. mortgage market. The pain is most apparent in subprime mortgages, though there are signs it is spreading to other parts of the mortgage market.”

Subprime mortgage holders are most likely to fall into delinquency because they get charged much higher interest rates because of their unstable credit history. But these higher rates have not stopped anyone from wanting to get into a subprime loan in order to own a home, because this sector of the mortgage industry is one of the fastest growing and most profitable.

“Subprime mortgage originations climbed to $625 billion in 2005 from $120 billion in 2001, according to Inside Mortgage Finance, a trade publication.”

This is due in part to relaxed lending standards that were put in place when the housing boom leveled off in order to get more people into homes. Now, these lenders who let un-qualified borrowers into their loans to generate business are now paying the price.

Homeowners who were just barely getting by during the housing boom are faced with higher chances of foreclosure now that the market is stalling because people who are in trouble financially will have a harder time selling their home in today’s market.

Also, they may not have enough equity in their home because of the falling prices in order to refinance and make-up any late or missed payments.

According to UBS AG, about 80,000 borrowers who took out a subprime loan packaged into securities are behind on their payments. Depending on how much worse the housing market gets, we may see an even bigger increase in this already alarmingly high number.

The number of delinquencies has been rising quite rapidly since 2005, but we have seen the most tremendous increases within the last few months.

“Though delinquency rates on subprime mortgages originated in the past year have soared to the highest levels in a decade, economists don't expect any significant harm to the nation's economy or financial systems. But if late payments and foreclosures continue to rise at a faster-than-expected pace, the pain could extend beyond homeowners and lenders to the investors who buy mortgage-backed securities.”

Homeowners who are falling behind on payments should seek help immediately.

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