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In Cooling Market, Subprime Lenders Feeling The Heat

By Mark Huffman
ConsumerAffairs.com

March 6, 2007

Living in a Bubble? Mortgage Crisis? Act Now to Avoid Foreclosure • Avoiding Foreclosure Takes More Than Hope --- • Auto Loan Delinquencies Rise • Countrywide Settles Predatory Lending Charges for $8.68 Billion • 'Hope for Homeowners' Program Offers Faster Relief than Wall Street Bailout • Economists Offer Plan for Stabilizing House Prices • Payrolls Plunge in September • States Fault Foreclosure Prevention Efforts • Home Prices Suffer Double Digit Declines • Congress Agrees On Compromise Bailout Bill • Wachovia Looks for Buyers of Troubled Assets • Home Sales Continue Their Slide in August • Wall Street Becomes Main Street: Is It 1929 Again? • Seniors Hit Hard by Financial Crisis • Mortgage Rates Fall for Fifth Straight Week • Lenders Offering Homeowners Little Aid, Congress Told • August Housing Starts Near 18-Year Low • Mortgage Rates Plunge • Inflation Rising, Home Construction Falling • Rise in Mortgage Rates Linked to Falling House Prices • Has the Bear Market Hit Bottom Yet? • Inflation Surges in July • Sales of Existing Homes Hit 10-Year-Low • Foreclosure Activity Up 55 Percent In July • West Virginia Sues Countrywide Financial • Pending Home Sales Rise In June --- • More ...

As the once-hot housing market cools, subprime lenders are feeling a frigid breeze.

Consumers who could only qualify for a home purchase by getting a risky, "creative" mortgage are finding they can't make their payments and can't find a ready buyer in the current market.

The result is an increasing number of home foreclosures. The Boston Globe reports that in February, 2,207 Massachusetts homeowners lost their homes through foreclosure, nearly double the number from a year ago.

Much of the blame is falling on subprime lenders, whose loose lending standards often resulted in unqualified consumers buying more house than they could actually afford. Those who once embraced these new standards -- or looked the other way -- are now running for cover as the housing market continues its slide.

Freddie Mac, one of the nation's largest buyers of home mortgages, last week took the first step to distance itself from subprime lending, announcing a series of tough new standards for the loans it purchases. It makes it clear it plans to pass on a number of riskier types of loans that have been linked to increased default rates.

This week, a House Financial Services subcommittee will hold hearings to looking into charges of predatory lending practices by some lenders who cater to the subprime market -- consumers with impaired credit.

"The trend of increased foreclosures is certainly troubling, and it is important to understand the potential root causes," said Rep. Carolyn Maloney (D-NY), the subcommittee chair.

While Congress begins the search for root causes of foreclosure, some states are taking steps to stop predatory lending. Iowa officials have drafted legislation to curb predatory lending, taking special aim at the subprime lending industry.

"Predatory lending exploits consumers," Iowa Attorney General Tom Miller said. "We are trying to outlaw some questionable practices that cause consumers to pay too much and get trapped in high-cost loans. In the worst cases, consumers can't make their loan payments, and they lose their homes."

Miller said he was concerned by increasing foreclosure rates in Iowa and around the nation. Foreclosures in Iowa were up 64% in 2006 compared to 2005.

"This bill is about conduct -- about reining-in bad practices we have seen. It will help root out the ‘bad actors' who have harmed consumers and have unfairly gained market share at the expense of honest lenders. It will not ban any products, and it will not restrict consumers' access to credit," Miller said.

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