The subprime market for home loans has dried up for now, but the bad subprime loans made at the height of the mortgage bubble continue to damage neighborhoods and drown the economy in foreclosures. New information in a Center for Responsible Lending report provides a fresh, grim snapshot of the spreading negative effects of subprime mortgages that were aggressively marketed up until last year.
The report, "Continued Decay and Shaky Repairs: The State of Subprime Loans Today," includes these findings:
- Over 1.5 million homes have been lost through subprime foreclosures.
- Another 2 million families with subprime loans are in danger of losing their homes in the near future.
- Efforts to stop continuing waves of foreclosures are failing, and problems are rapidly spreading beyond subprime mortgages.
The foreclosure projections are for subprime only, but problems are mounting among other types of loans, such as Alt-A mortgages. Based on a recent analysis by Credit Suisse, one in six families now holding a mortgage is at risk of losing their home to foreclosure during the next five years.
The CRL report shows that loan modifications continue to fall behind the rising rate of defaults, and too many of the too-few modifications that have been done are inadequate, and are therefore causing distressed families to default again. Research shows that most loan modifications don't reduce monthly payments and so, not surprisingly, end up re-defaulting. The results to date are clear: Only modifications that reduce a borrower's monthly payments to an affordable level stand a good chance of preventing foreclosure.
"Because the foreclosure crisis is at the root of this recession, the continuing flood of foreclosures stymies any chance of real economic recovery," says CRL president Michael Calhoun. "Any economic stimulus would be a band-aid solution unless we stop the hemorrhaging in our housing market."
Regulators and lawmakers need to modify loans through the Troubled Asset Relief Program (TARP), which so far has helped only financial institutions, not the people who are losing their homes. Treasury should require TARP recipients to adopt streamlined modification programs and also guarantee sustainably modified mortgages against default. Congress should also act fast to lift the ban on judicial loan modifications, which would prevent hundreds of thousands of foreclosures without requiring any taxpayer funding.
Read the report at continued-decay-and-shaky-repairs-the-state-of-subprime-loans-today.html.