Dire Report: Subprime National, Florida Mortgages Going into Default

The Center for Responsible Lending predicts that one of five subprime national/Florida home loans originated in the past two years will end up in foreclosure - and that as many as 2.2 million households have already lost their homes or will end up in foreclosure in the next several years.

The center says it analyzed the performance of more than 6 million subprime mortgages going back to 1998 for its report, “Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners.”

The report claims the chance of foreclosure on a subprime loan doubled between 2002 and 2005, with subprime loans originated in 2002 having a 10 percent chance of foreclosing over the life of the loan, compared with a 20 percent chance of subprime loans closed in 2005 and 2006.

Refinancing a subprime Florida mortgage loan

Rather than serving as a stepping-stone to a prime loan, many borrowers refinance into another subprime loan when their interest rates adjust, the report said. Borrowers who repeatedly go through with Florida mortgage refinancing face a 36 percent chance of losing their homes to foreclosure.

The National Association of Realtors this week participated in a conference call with representatives of the Center for Responsible Lending and the Leadership Conference on Civil Rights, urging consumers to make sure they understand the risks and rewards of all types of mortgages before they make a decision on a loan.

A different take

But the Mortgage Bankers Association disputed the findings of the Center for Responsible Lending’s report, saying it distorts statistics. MBA Chief Economist Doug Duncan told the group’s members that foreclosures occur in good times and bad, and that while there has been an uptick in Florida mortgage loan delinquencies and foreclosures, part of the reason is the increased number of borrowers.

The recommendations in the Center for Responsible Lending’s report include expanding recently issued federal guidelines for interest-only and payment-option Florida home loans to all types of subprime loans and nontraditional mortgage products, and requiring that the guidelines apply to ALL lenders, not just federally chartered banks.