The Foreclosure and Subprime Frenzy

Lately the news has been saturated with various reports on the impact of the subprime lending industry. With the rate of foreclosures skyrocketing within the subprime arena many lenders, and the economy have taken quite a hit.

According to a report from the Mortgage Bankers Association, a record high number of homeowners were facing foreclosure in the last quarter of 2006.

During the fourth quarter nearly 14 percent of roughly 6 million subprime loan borrowers were defaulting on their payments. One of the main reasons for the rise in foreclosures is due in part to the higher interest rate resets. Critics also conclude these subprime borrowers were even more “susceptible” due to their less than par credit and were lured in with initial low “teaser” payments.

Some of the states hardest hit by foreclosures or what is deemed as a “pre-foreclosure” seemed to be scattered throughout the nation with Mississippi and Louisiana reflecting the highest default rates followed by Michigan.

Meanwhile, the stock market plunged last week partially due to the impact of the subprime mortgage crisis. One company that has gained a majority of the press is New Century Financial Corp., of California. New Century and Fremont General represent roughly 14 percent of the entire subprime bond market. The New York Stock Exchange has even suspended New Century from its stock listings after the company reflected a recent 90 percent plunge in its stock value. The company is also under a preliminary investigation for its lending practices.

On the up-side the market may be ripe for distressed property investment. Foreclosures can also provide a great housing alternative for first-time homebuyers or a lucrative investment for the every-day real estate gurus.


Article Source http://www.mlive.com/business/fljournal/index.ssf?/base/business-4/1177514552235210.xml&coll=5