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Subprime Rate Loans And The Current Mortgage
Foreclosure Crisis
“Some 80 percent of outstanding U.S. mortgages are prime,
while 14 percent are subprime and 6 percent fall into the
near-prime category. These numbers, however, mask the
explosive growth of nonprime/subprime mortgages. The
subprime market sector grew from $150 billion in 2000 to
$650 billion in 2007, or roughly 25 percent of the overall
mortgage market. Subprime and near-prime loans increased
dramatically, from 9 percent of newly originated securitized
mortgages in 2001 to 40 percent in 2006.” 11
The relationship between subprime rate loans and defaults
and foreclosures is undeniable. Numerous surveys and
reports point to a strong relationship between subprime rate
loans and the foreclosure crisis. The delinquency Survey of
the mortgage Bankers Association, and two recent reports,
one entitled “Analysis of Subprime mortgage Servicing
Performance” (data Report 1 and 2) by The State Foreclosure
Prevention Working Group (State Working Group) 12 and
another entitled “OCC mortgage metrics Report – Analysis
and disclosure of National Bank mortgage Loan data” by the
Office of the Comptroller of the Currency all point to subprime
rate loans as a major reason for the foreclosure crisis.
11 The Rise and Fall of Subprime mortgages by danielle dimartino and
John V. duca ,Vol. 2, No. 11, November 2007, Economic Letter—Insights
from the Federal Reserve Bank of dallas
12 The State Foreclosure Prevention Working Group, formed in the
summer of 2007, consists of the Attorneys General of 11 states (Arizona,
California, Colorado, Iowa, Illinois, massachusetts, michigan, New York,
North Carolina, Ohio, and Texas), two state bank regulators (New York
and North Carolina), and the Conference of State Bank Supervisors.
On June 5, 2008, the mortgage Bankers Association of
America released its latest delinquency Survey. The survey
reported that “the seasonally adjusted total delinquency
rate is the highest reported in the mBA survey since 1979”
and that “the rate of foreclosure starts and the percent of
loans in the process of foreclosure are at the highest levels
ever.” 13 According to the mBA’s National delinquency
Survey, “the delinquency rate for mortgage loans on oneto-four-unit
residential properties stood at 6.35 percent of all
loans outstanding at the end of the first quarter of 2008 on
a seasonally adjusted (SA) basis, up 53 basis points from
the fourth quarter of 2007 and up 151 basis points from one
year ago. The survey also reported that “the percentage
of loans in the foreclosure process was 2.47 percent of all
loans outstanding at the end of the first quarter, an increase
of 43 basis points from the fourth quarter of 2007 and 119
basis points from one year ago.” 14 Finally, and of most
significance to this study, the survey included a table that
shows prime and subprime rate loans as a percent of loans
outstanding relative to the percent of foreclosures started:
TABLE 1: LOAN TYPE AND PERCENT OF FORECLOSURES STARTED
13 delinquencies and Foreclosures Increase in Latest mBA National
delinquency Survey, mortgage Bankers Association of America, pg.
1,June 5, 2008
14 Ibid
Page 4 of 27 The Demographic Impact of the
Subprime Mortgage Meltdown