Subprime mortgages are available to consumers with damaged credit or little borrowing experience. The loans typically carry a higher interest rate or terms that raise their costs above so-called prime loans.
Subprime default rates have been on the rise and more than two dozen lenders have failed or quit the business in the last year.
Following are details on the U.S. subprime mortgage market:
– Subprime loans grew to 13.6 percent of the total mortgage market last year from 2.4 percent in 2000, according to the Mortgage Bankers Association. The Federal Reserve Board says U.S. households owed $9.7 trillion on home mortgages at the end of last year.
— There are roughly 13 million subprime loans in the market today, the MBA says.
– Forty percent of adjustable-rate and interest-only home loans made in 2006 were to subprime borrowers, and subprime loans account for about 20 percent of all mortgage loans made in the past two years, according to ratings service Standard & Poor’s.
– In the fourth quarter of 2006, lenders began foreclosure proceedings on 0.54 percent of all mortgages, the highest rate on records dating back 37 years, according to the MBA. Two percent of subprime mortgages entered foreclosure, the highest in three years.
— 13.33 percent of subprime loan payments were delinquent in the last three months of 2006, according to the MBA. That’s the highest level since 14.39 percent in the third quarter of 2002
– Another 100 mortgage lenders who dabbled in the subprime sector are likely to drop out this year, the MBA says.
– 1.5 million homeowners will face foreclosure this year, according to research firm RealtyTrac. That would be a 20 percent to 25 percent increase over last year.
– MBA estimates that between $1 trillion and $1.5 trillion in adjustable-rate mortgages face an interest rate reset that will sharply raise their cost this year.
– One in five subprime mortgages in 2005 and 2006 will end in foreclosure, according to the Center for Responsible Lending, a consumer advocacy group.