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In Cooling Market, Subprime Lenders Feeling The Heat

By Mark Huffman
ConsumerAffairs.com

March 6, 2007

Mortgage Crisis? Act Now to Avoid Foreclosure • Avoiding Foreclosure Takes More Than Hope --- • Home Prices Fall, But News Is Less Bad For Homeowners • Marketing Analysis Suggests Housing Bottom • Mortgage Rates Dip As Inflation Fears Ease • Have Mortgage Rates Hit Bottom? • Ex-Countrywide CEO Faces Fraud Charges • Pending Home Sales Surge in April • Foreclosure Starts Hit 1 Million For the Year • Mortgage Delinquencies At Record High • Existing Home Sales Rise in April • U.S. Home Values Now 32 Percent Below Their Peak • Bankruptcy Not Helping People Keep Their Homes • Home Values Plunge 14 Percent In First Quarter • One In Five Homeowners Underwater • Pending Home Sales Turn Around In March • Senate Defeats Mortgage 'Cram Down' Bill • Mortgage Rates Keep Falling • Home Sales Fall in March • Home Prices Show Surprising Gain in February • Foreclosures Up 9% in First Quarter • Southern California Home Sales Up Again in March • Mortgage Applications Rise Sharply • Obama Administration Targets Mortgage Fraud • Homeowners Still Behind On Modified Mortgages • Consumers Fall Further Behind on Loan Payments • Pending Home Sales Show Some Life • Home Prices Down To 2003 Levels in January • Fed Action Spurs Refinance Frenzy • Existing Home Sales Jump Five Percent in One Month • California Authorities Arrest "Loan Modification" Scam Artists • Southern California Home Sales Up Again • Loan Modifications Can Reduce Foreclosures, Study Says • Scammers Use Forged Bank Letterhead to Con California Consumers • Foreclosure Activity Up Six Percent in February • States Battle Feds To Enforce Lending Laws • Mortgage Delinquencies Continue to Climb • Obama Begins Mortgage Rescue Program • One Of Five U.S. Mortgages Under Water • Florida Court Blocks Loan Modification Company's Fees --- • 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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