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Subprime Mortgage Homeowners In Rocky Waters
Published: September 26, 2007
Washington, D.C. -- New data suggests that U.S. subprime mortgage market losses will increase as falling house prices negate refinancing options for adjustable rate mortgage borrowers, the Financial Times reports.
Data released Tuesday painted a bleak picture of the mortgage market. U.S. home sales in August fell 4.3 percent to a five-year low, according to government data; an index compiled by Case Shiller showed that housing prices in the top 20 U.S. cities fell 3.9 percent in July from 2006.
Analysts now say house prices will likely fall further, putting homebuyers who secured subprime mortgages -- based on the belief their rising home equity would allow them to refinance their loans before rates increased -- in late 2005 and 2006 in serious trouble.
The price drops could leave those borrowers with negative home equity. With the current stricter lending standards, many of the 2.5 million households due for increased mortgage payments in the next year and a half may have a harder time qualifying for new mortgages.
Because 73 percent of the adjustable-rate subprime loans are tied to the London interbank lending rate, the Federal Reserve’s overnight rate cut last week to 4.75 percent won't help all subprime borrowers.
Subprime mortgage defaults and late payments are currently four times the historical average.
