The increase in defaulted subprime loans is causing a glut in the housing market. The National Association of Realtors says more than 4 million homes, both new and existing, went up for sale in January. Industry insiders say subprime loans will add another 500,000 to that number.
“We estimate that looser lending standards will add another 533,000 homes as borrowers default,” wrote Sarah Rowin of CreditSights in a March 1 report. “This is an unwelcome phenomenon given the existing housing supply.”
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Analysts estimate the largest gain in home ownership was due largely to subprime mortgages, a fact reflected in the jump of available lenders.
“Over a five-year period from 2001 to 2005, the subprime mortgage market went from a $120 billion-a-year industry to a $600 billion-a-year industry,” said BrandonIvey, an editor at Inside Mortgage Finance. “In 2001, 5.4 percent of all home loans were from the subprime market. By 2005, that number was up to 20.1 percent.”
However, with many subprime lenders such as Fremont, the country?s sixth-largest, going belly-up as the federal government tightens up lending criteria, many borrowers with challenged credit will face tough times in the very near future.
December reports indicate more than 10 percent of subprime loans were more than 60 days late and in foreclosure, up from 5.4 percent in May.
“There will be a major economic impact across the country as we begin to see changes in the subprime market criteria,” said Roger Bowen, a housing consultant for the Neighborhood Assistance Corporation of America, a nonprofit housing assistance program. “A lot of people will lose their homes and others with questionable credit will have a difficult time finding lending sources.”
