Home ownership is an American dream. Yet, America faces a crisis in the residential housing market that threatens that dream for many. Approximately 2.2 million borrowers with home equity totaling $164 billion or almost one-third of outstanding subprime mortgages will face foreclosure. An even greater number of subprime home loans, 16.31% are delinquent, with 2.12% beginning foreclosure in the third quarter of 2007 and 6.89% of the delinquent subprime loans in foreclosure at the end of the third quarter. Loans totaling $164 billion are delinquent in monthly mortgage payments. Ironically, these rising delinquency and foreclosure rates are due in large part to greater access to credit for homebuyers through the subprime lending market. Though subprime lending has filled a credit gap and addressed the problem of access to mortgage financing by creating a new market for home ownership, it has created more opportunities for abusive lending. Borrowers have entered into financially detrimental and imprudent loans, often without being fully aware of or understanding the substance of their commitments. These often predatory loans are characterized by product terms and features such as interest- only, high loan-to-value ("LTV") ratios, low start rates, and adjustable rates. Borrowers also have entered into mortgage agreements with high debt-to-income ratios; loans in which the monthly payment was large relative to the borrower's income. Many of these borrowers received loans without providing supporting documentation of their income or even providing a down payment. The rising number of subprime mortgage foreclosures threatens to undermine the significant home ownership gains made over the past two decades.
Cassandra Jones Havard,
"Goin' Round in Circles"... and Letting the Bad Loans Win: When Subprime Lending Fails Borrowers: The Need for Uniform Broker Regulation,
86 Neb. L. Rev.
Available at: http://digitalcommons.unl.edu/nlr/vol86/iss4/1