home subscribe advertise reprints e-mail help RSS about us LOG IN

Mortgage News


Mortgage News

HOT Topics









site map

twitter linkedin
facebook google+

Mortgage News

News by Subject
Complete list of specialty news sections.

Purchase Subscription
Subscribe to MortgageDaily.com and get immediate access to all news, statistics and archives.

Mortgage Advertising
Reach mortgage executives, loan originators and other people tied to mortgage industry.

Consumer Mortgage News
Free mortgage news for prospective borrowers.

Mortgage Newsletter
Free e-mail newsletter with the latest headlines from MortgageDaily.com.

Mortgage News Reprints
Put entire MortgageDaily.com stories in your online or printed newsletter or publication.

Mortgage Feedget RSS code
Condensed MortgageDaily.com stories free on your Web site or for your RSS reader.

News Archives
Archive of MortgageDaily.com stories by month going back to 1999.

Press Releases
Reports and announcements from MortgageDaily.com.

Mortgage Statistics
Data and statistics for real estate finance.

Mortgage Directories
Directories of lenders, branch operators and mortgage service providers.

Mortgage Graphs
Directories of lenders, branch operators and mortgage service providers.

Nonprime and Subprime News | Subprime Statistics
Stories about non-QM products. Coverage of subprime, Alt-A and
hard money lending. Home-equity loans and home-equity lines of credit.

Subprime Bubble?

FDIC report says subprime ARM borrowers pose risk to entire credit system

March 18, 2004


While adjustable rate subprime borrowers may have been responsible for helping push the national homeownership rate to historically high levels, a government agency says this segment of borrowers poses a threat to the country's consumer credit system. Most at risk are borrowers in high cost areas.

In its latest quarterly analysis of mortgage credit and the housing market, the Federal Deposit Insurance Corporation (FDIC) said there is a perception home prices will plunge nationwide because brisk appreciation in home prices over the past several years has outpaced income growth.

But, since most of the factors affecting home prices are local in nature, the FDIC said a nationwide housing bubble is highly unlikely -- even if mortgage rates rise from current lows.

A pair of economists at Fannie Mae recently predicted the 30-year fixed rate will rise to 6.10% by the end of the year.

"However, risks remain in mortgage portfolios dominated by highly-leveraged borrowers with volatile incomes or limited financial reserves," said the FDIC, an independent agency of the federal government. "Subprime borrowers and homebuyers in high-priced home markets tend to rely heavily on adjustable-rate mortgages, leaving them vulnerable to rising debt service costs once short-term interest rates begin to rise."

The FDIC pointed out that subprime variable rate borrowers in high priced homes were among the homeowners who recently pushed the nation's ownership rate to record levels during a time of historically low interest rates -- and many were able to obtain a home only through low-down-payment and adjustable-rate mortgages (ARMs).

The low rate environment facilitated more than three-quarters of currently outstanding mortgage debt -- $6.6 trillion by the third quarter 2003 -- to be originated over the past three years, the FDIC said. While mortgage credit quality indicators have shown slight improvement since the 2001 recession -- delinquencies on all residential mortgage loans have declined to 4.28% since peaking at 4.83% in the third quarter that year -- subprime loans historically have shown default rates ten times greater than prime loans extended to borrowers with solid credit records. High loan-to-value mortgages also show higher default rates, said the agency.

Subprime borrowers have recently performed well in the low rate environment. According to the fourth quarter delinquency survey released last week by the Mortgage Bankers Association of America, the delinquency rate on subprime borrowers actually fell 110 basis points to 11.59% -- even below the FHA delinquency level, which reportedly rose.

FDIC chart

Meanwhile, the popularity of adjustable-rate mortgages in high-priced markets also raises concern. According to the study, ARMs comprised one-fifth of total conventional mortgage originations in 2003, and their share more than doubled from January to December, going from 14% to 32%.

ARMs made up about 28% of all mortgage applications taken last week, according the Mortgage Banker Association's weekly survey.

The trend, said FDIC, "suggests that at least some homebuyers were stretching to keep their monthly payments manageable in the face of rising home prices." This is especially true for borrowers in high-priced housing markets such as San Francisco, San Diego, Los Angeles, New York, Boston, Seattle and Denver, where for affordability purposes, borrowers use ARMs more frequently than borrowers elsewhere. Since these places have historically posted some of the widest home price swings, homeowners in these markets are potentially exposed to both rising monthly mortgage payments and falling house prices if interest rates rise.

Although overall mortgage quality has improved somewhat since the 2001 recession, consumer debt has grown rather than deleveraged, said the agency. In just one year ending September 2003, U.S. households acquired nearly $925 billion in debt, an increase of more than 11% -- "households have not assumed debt so quickly since the late 1980s." While the amount of household credit debt is not worrisome in itself, it is the high concentration among high-credit-risk households that poses additional risk to residential lenders. Credit losses may in turn affect nonmortgage consumer lenders if households prioritize paying their mortgage over paying unsecured consumer credit, such as credit cards, said the FDIC.

Coco Salazar is an assistant editor and staff writer for MortgageDaily.com.

email: [email protected]

SUBSCRIBERS: Edit Subscription | Subscription Help | or call 214.521.1300

Subscribe Contact Us Site Map

Copyright © 2017 Mortgage Daily, D a l l a s
Subsribers Only:

AMC directory

ARM indexes

mortgage company directory

mortgage regulations

net branch directory

p r i c i n g engine directory

wholesale lender directory

More Mortgage News Resources (full site map):

advertising news

appraisal news

bank news

biggest lenders

commercial mortgage news

corporate mortgage news

credit news

FHA news

financial regulation news

foreclosure news

GSE news

jumbo mortgage news

interest rates

loan modification news

loan originator survey

LOS Newsletter


mortgage associations

mortgage-backed securities

mortgage books

mortgage brokers

mortgage compliance

mortgage conferences

mortgage directories

mortgage education

mortgage employment

mortgage employment index

mortgage executives

mortgage fraud

mortgage fraud blog

mortgage fraud local news

Mortgage Fraud Index

Mortgage Graveyard

mortgage insurance news

mortgage lawsuits

mortgage leads

mortgage lender ranking

mortgage licenses

mortgage litigation

Mortgage Litigation Index

Mortgage Market Index

mortgage mergers

mortgage news

mortgage politics

mortgage press releases

mortgage production

mortgage public relations

mortgage rates

mortgage servicing

mortgage statistics

mortgage technology

mortgage video

mortgage Webinars

net branch

net branch directory

nonprime news

origination news

originator tools

real estate news

refinance news

reverse mortgage news

secondary marketing

social media

servicing news

subprime news

wholesale lenders