While some of the nation’s leading economists are optimistic for an improved housing outlook during the second half of 2007, Wall Street’s capital markets researchers — the money guys — are concerned hundreds of thousands of [tag]home loan borrowers[/tag] could be in default before the summer months arrive. Chris Flanagan, managing director and head of global research for JP Morgan Securities, said approximately 35 percent of all [tag]subprime mortgag[/tag]e borrowers could have a difficult time meeting their loan obligations when their [tag]adjustable-rate mortgage[/tag]s hit their first adjustment period.

The amount of money at stake could be $200 billion, with as many as 500,000 to 1 million consumers in potential jeopardy. Many of the loans were “stated income” or low-documentation loans, which involved a relatively low-interest-rate first mortgage and a simultaneous, or “silent second,” mortgage, which together equaled the entire value of the property. In the mortgage business, this is known as a 100 percent loan-to-value-ratio loan. Frank Nothaft, chief economist for mortgage giant Freddie Mac, said while subprime borrowers typically have a default rate eight to 10 times greater than conforming borrowers, he was more suspicious of the huge share of speculators/investors than owner-occupants. “For an owner-occupant to go into default, you usually have to have a trigger event like unemployment or serious illness in the family,” Nothaft said.

click here for article