Mortgage & Loan: Foreclosure For The Holidays

Ah, Christmastime. Warm fireplaces, family gatherings, being stuck in airports, and now the danger of losing your home:

A new Center for Responsible Lending (CRL) study reveals that 2.2 million American households are likely to lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market...CRL's research suggests that risky lending practices have triggered the worst foreclosure crisis in the modern mortgage market, projecting that one out of five (19.4%) subprime loans issued during 2005-2006 will fail.

Calculated Risk has an extremely thorough and in-depth study on the different types of ARMS, how they work, and why introducing them as instruments for the subprime lending market was the mother of all bad ideas:

When hybrids hit the subprime market, they not surprisingly mutated a bit, the initial fixed period on the majority of loans shrinking to 2 years with a 6-month reset, often with interest only for two years and a deeply-discounted start rate. This made the “subprime hybrid” an even worse performer than the old one-year “true ARM,” but certain folks continued to delude themselves (and their investors) that the “hybridization” of these products actually improved the risk characteristics, never mind that the loan was less a cross between a FRM and an ARM than it was a high-risk ARM with a single drop of FRM in it two generations ago.

No doubt this accounts for the slowdown in refinancing, as cash-strapped subprime borrowers pause and wait for the prime moment to make the jump to fixed loans.

As you celebrate your holiday season and gift-giving this weekend, take a moment to count yourself lucky you have a place to live, and that you aren't stuck in the ticking time bomb of a bad loan that's draining your money away like a vampire's bite.

Posted at December 22, 2006 12:45 PM

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Ah, Christmastime. Warm fireplaces, family gatherings, being stuck in airports, and now the danger of losing your home: A new Center for Responsible Lending (CRL) study reveals that 2.2 million American households are likely to lose their homes and as much as $164 billion due to foreclosures in the subprime mortgage market...CRL's research suggests that risky lending practices have triggered the worst foreclosure crisis in the modern mortgage market, projecting that one out of five (19.4%) subprime loans issued during 2005-2006 will fail. Calculated Risk has an extremely thorough and in-depth study on the different types of ARMS, how they work, and why introducing them as instruments for the subprime lending market was the mother of all bad ideas: When hybrids hit the subprime market, they not surprisingly mutated a bit, the initial fixed period on the majority of loans shrinking to 2 years with a 6-month reset, often with interest only for two years and a deeply-discounted start rate. This made the “subprime hybrid” an even worse performer than the old one-year “true ARM,” but certain folks continued to delude themselves (and their investors) that the “hybridization” of these products actually improved the risk characteristics, never mind that the loan was less a cross between a FRM and an ARM than it was a high-risk ARM with a single drop of FRM in it two generations ago. No doubt this accounts for the slowdown in refinancing, as cash-strapped subprime borrowers pause and wait for the prime moment to make the jump to fixed loans. As you celebrate your holiday season and gift-giving this weekend, take a moment to count yourself lucky you have a place to live, and that you aren't stuck in the ticking time bomb of a bad loan that's draining your money away like a vampire's bite.