Subprime Mortgage Borrowing

By Andrew Cho

Many people assume that the housing market took a downward spiral because of subprime lending. Although the percentage of subprime loans in foreclosure is more than any other sort of mortgage, the types of loans that are now going downhill the fastest are ones that are sold to credit-worthy borrowers.

However, these once credit-worthy borrowers are facing an economic environment that is continually losing jobs. According to the managing director of loan-tracker LPS Apllied Analytics, "now [we] have widespread house price deterioration and people losing their jobs. If you lose your job, it doesn't matter if you have a good loan product, you still might not be able to make your payment."

The problem now is that those individuals who in the past could make their mortgage payments are feeling the strain of the economy. The large mortgages taken out by these people are far too much for them to pay back at the current time. Among prime borrowers, those with jumbo mortgages — ones that have traditionally been for more than $417,000 — are seeing delinquencies accelerate the fastest. In January, 3.32% of such borrowers were behind on their payments, up from 1.75% in August.

References:
http://www.time.com/time/business/article/0,8599,1880968,00.html
http://www.nytimes.com/2008/02/12/business/12credit.html
http://www.msnbc.msn.com/id/17584725