Report: Bad Credit Florida Mortgage Market Contained Despite Widespread Concern

Defaults in the Florida mortgage market and across the U.S. have generated a lot of media headlines, but the vast majority of owners with mortgages are repaying their home loans just fine - and their consumer spending power dwarfs that of subprime borrowers, Reuters reports.

Subprime (or bad credit Florida mortgage) loans made to those less creditworthy borrowers comprised only 13.7 percent of outstanding mortgage debt in the fourth quarter of 2006, and their delinquency rate was 13.3 percent.

The subprime mortgage market now is “little more than an asterisk in the overall U.S. credit economy,” said Roth Capital Partners economist Donald Straszheim.

The concern that defaults among subprime borrowers will spill over to lower consumer spending in the economy is unwarranted, said Sean Snaith of the University of Central Florida’s Institute for Economic Competitiveness.

“It’s the latest episode of housing hysteria,” Snaith said. “It’s a small segment of the overall mortgage market and its problems are not akin to a currency crisis where there is some contagion that just ripples through an economy.”

By contrast, some argue that with this Florida mortgage crisis, a huge problem is in the making and government action is needed.

A week after a coalition of civil rights groups called for a six-month halt to loan foreclosures on subprime borrowers, Democrats in Washington called for the government to bail out troubled subprime mortgage holders on Wednesday.

“The federal government can send in an infusion of (money) to prevent foreclosure,” said U.S. Sen. Charles Schumer (D-N.Y.), citing the grave possibility of the loss of “hundreds of millions of dollars.”

Such intervention may not be necessary, however.

“It’s easy to build a domino theory for this,” Milton Ezrati, an economist with fund manager Lord Abbett, said. “There is a risk but I don’t see it as likely.”

With demand for homes sluggish and so much property already for sale, it is doubtful Florida mortgage lenders are in hurry to foreclose though.

“It’s in everybody’s interest, both the borrower and the lender, to find a way to avoid foreclosure,” said Dana Johnson, economist with Comerica Bank.

With about 40 percent of new mortgages in the past year being made to subprime borrowers, as mortgage rates have been rising and home prices stagnating, many subprime mortgages may be headed toward foreclosure.

But they represent only a small proportion of the $9 trillion worth of U.S. home mortgages outstanding, and about $5 trillion of mortgages outstanding have been securitized.

“If we’re talking about the subprime lending industry I think there is a compelling and distressing story to be told,” said Richard DeKaser, an economist with financial holding company National City Bank.

“But if we’re talking about the [Florida housing market] or the economy as a whole, I think its role has been over-amplified.”

Continue reading this article by Reuters …