Study Predicts More Foreclosures on Subprime Mortgages

A study from the Center for Responsible Lending is predicting rising foreclosure rates on high-interest loans.

According to the study, and reported by the Washington Post, about 2.2 million homeowners with high-interest mortgages have lost their homes to foreclosure. Or, if they haven’t, they’re pretty close to doing so within the next several years.

This report doesn’t come out of the blue. Earlier this month, a bipartisan Senate group wrote to federal banking regulators asking them to warn lenders that they should make subprime loans only if they are sure the borrowers can repay. The four Democrats and two Republicans asked banking regulators to "move quickly" to add these subprime loans to a warning they issued to lenders recently on other kinds of popular nontraditional mortgages.

The Mortgage Bankers Association sees the study as much ado about nothing. They feel the report is “wildly pessimistic” since most homeowners have prime loans and are not at financial risk. Mike Fratantoni, a senior economist at the MBA said that the subprime market is a small part of the overall market. Lending industry officials have said that regulatory action could injure the subprime market.

"Ninety out of 100 borrowers make their payments on time every month," Fratantoni said. "We don’t want to jeopardize the availability of mortgage credit because not everybody is a success."