Run into more customer service bots lately? Let Marketplace Tech know. More info

Headed for a mortgage meltdown

Dan Grech Dec 20, 2006


SCOTT JAGOW: In this country, one of the ways lower-income people have gotten into the housing market recently is subprime lending. But a new study predicts 20 percent of those folks, about 2 million people, will probably lose their homes. Dan Grech has this report.

DAN GRECH: The prediction is for the largest rash of foreclosures in the modern mortgage market. And the chief cause: subprime loans or those made to people with bad credit.

These loans often start out with low interest rates, but they eventually skyrocket beyond the borrower’s ability to pay.

Subprime loans have other risky features -such as prepayment penalties that make it harder to refinance. Add that to a housing downturn and rising interest rates, and you get a mortgage meltdown.

Ellen Schloemer co-authored the study.

ELLEN SCHLOEMER: There’s great business to be done, everybody can make money, and people can get into homes and we can increase home ownership. And people lost sight of the fact that home ownership is only important if you can keep it.

These foreclosures are expected to cost homeowners $75 billion, mostly in home equity.

The study found that foreclosures would disproportionately affect Hispanic and black homeowners.

In New York, I’m Dan Grech for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.