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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.

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