Subprime Loans Soared In Boom, But Are Now Creating Problems
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A spike in loans to cash-strapped home buyers is raising concerns that more trouble may lie ahead for the housing market. The Center for Responsible Lending predicted last month that one in five subprime mortgages initiated in the past two years will end in foreclosure, kicking 1.1 million homeowners to the curb and costing them a total of $74.6 billion. |
Subprime loans target borrowers with low incomes or poor credit, charging higher rates for the risk. Increasingly, these loans contain risky provisions to get people into a home, such as adjustable rates or initial teaser rates that don’t even cover the interest charges. In the worst cases, lenders offer credit without verifying income or assessing if borrowers can keep up with payments, the CRL report said. “Lending got overly eager in the past several years, and we’ll see the ill effects of that over the next several years,” said Mark Zandi, chief economist at Moody’s Economy.com, which supplied data for the study.
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