According to the MBA's statistics approximately 11% of subprime loans are used by first-time homebuyers.
Last week MBA stated that "Today, homeownership stands at 69 percent because many people not able to get credit in the past have gotten the opportunity to borrow money. And, our data demonstrates that 87 percent of borrowers with subprime loans are paying their mortgages on time and enjoy the benefits of homeownership." MBA tracks 43.5 million loan database, including subprime, to track industry trends and statistics.
The Center for Responsible Lending
The Center for Responsible Lending points out that this means "loans in the subprime market are typically debt consolidation refinance loans and do not create new homeownership opportunities.
Loans that borrowers cannot afford do not lead to lasting homeownership. Comparing an 11% increase in homeownership with projected default rates of 19.4% for recent subprime loans; subprime lending appears to result in a NET LOSS of homeownership in its current form.
In addition, most borrowers who get subprime loans later refinance into new subprime loans, and many of these will also be foreclosed upon. Following the borrower through subsequent loans rather than just looking at that first loan, CRL roughly estimates in Losing Ground that actual subprime borrower foreclosure rates will be over 35%." CRL's research is based on the performance of more than six million subprime loans originated over a seven-year period.
Most sobering is the CRL prediction that "... one out of five (19 percent) subprime mortgages originated during the past two years will end in foreclosure. This rate is nearly double the projected rate of subprime loans made in 2002, and it exceeds the worst foreclosure experience in the modern mortgage market, which occurred during the 'Oil Patch' disaster of the 1980s."
Suggested Corrective Action
This past week, in testimony before the House, MBA Chairman John M. Robbins stated that "Working together, I suggest we must accomplish three things. (1) We must stabilize the subprime mortgage credit system; (2) provide assistance for homeowners facing foreclosure; and (3) finally prevent this from ever occurring again. Sound perspective and a prudent regulatory hand will soothe investors, calm editorial writers and help consumers."
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