Subprime Loans Lead to High Foreclosure Rate in Massachusetts
The high use of Adjustable Rate Loans and subprime borrowing in Massachusetts is leading to a very high default rate in the state, and with that record foreclosures. The high appreciation of homes in the past few years let people think of their properties as a bank to get money out of for living expenses and luxury items.
Now these transgressions are coming back to bite these borrowers hard. In 2004 cash out equity from Massachusetts homes was 14 percent of residents disposable income, now it is time to pay the piper.
Subprime mortgages were lauded for helping more Americans than ever buy homes during the housing boom earlier in the decade. But four years after their popularity took off, the loans are backfiring. More homeowners are no longer able to afford their payments, which typically rise sharply two years into the loan. In 2006, lenders filed 19,487 foreclosure notices against Massachusetts homeowners, surpassing the record high of 17,000 filings in 1991, during the state’s severe recession.
New research by the Federal Reserve Bank of Boston on the rising tide of foreclosure filings in the state found that subprime loans are a major culprit. While subprime loans make up 12 percent of all mortgages in the state, they accounted for more than two-thirds of foreclosure filings in the third quarter of 2006, the most recent data available . Most delinquencies were high-interest subprime loans with adjustable rates, which increase payments as interest rates rise. Homeowners hit the hardest were in the working-class cities of Brockton, Springfield, Lawrence, Fitchburg, and Lowell, the Fed said. via The Boston Globe
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Comment by Ed on 5 March 2007:
this is a huge issue in the midwest as well. I have also seen an increase in the lawsuits and class actions against banks for deceptive advertising of loans and their benefits. Not a good time to be over extended. Arizona has quite a bit of legal activity as well. My guess is that some one in the Mass area is going to start the legal bandwagon as well
– ROpenHouse
Comment by Ernani Uchoa on 6 March 2007:
There are many people loosing their homes due to unpaid mortgages. The property prices are decreasing as the latest report are showing. Will people get less money for their properties now? I guess the default rates are going to decrease a bit now. http://www.mostlyforeclosures.com/
Comment by btr on 31 July 2007:
there is plenty of blame to go around in the current troubles in the mortgage market. Countrywide’s announcement last week demonstrated that not just poor people got hosed – there were plenty of upscale folks seeking to make the next social jump that are now seeing their home values flat or sinking while their monthly payment takes a big jump.
for a while now, all the focus has been on the subprime market and how ‘those people’ should never have been allowed to borrow the way they did. Expanding opportunities for homeownership was an initiative that started with Clinton/Cisneros back in the 90’s and, since it was highly profitable, grew even more under the Bush crowd.
The numbers you see are that a disproportionate share of foreclosures are in the subprime loan pool. Duh – that’s like saying a disproportionate share of drownings are among people who don’t swim well (or at all). Ten folks in the pond, half swimmers, half not. Three non-swimmers drown, one swimmer. The headline reads “Aquatically-challenged suffer disproportionately”
The more interesting numbers that don’t make the news are the percentage of subprime borrowers for the entire period (almost a decade) who did NOT have problems making their payments and who never would have been able to buy under the old guidelines. In an effort to protect people against greed – others’ and their own – well-meaning officials are likely to reduce those opportunities. All because of the wrong denominator!