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A report from the Federal Reserve suggests subprime mortgage lending did nothing to boost home ownership.The report was announced today by the Federal Reserve Bank of St. Louis.
“The number of subprime mortgage loans terminated between 2001 and 2006 outweighed the number of estimated first-time homebuyers who sought subprime mortgages,” the report suggests. The study, prepared by Senior Research Economist Yuliya S. Demyanyk, analyzed whether subprime borrowers were utilizing the high-risk financing to speculate on real estate or to experience homeownership. The findings indicated that subprime mortgages originated between 2001 and 2006 generally stayed on the books for less than three years. “In fact, almost half the loans exited the market either through pre-payment or default within the first two years of origination and about 80 percent did so within three years of origination,” the fed said. “Demyanyk said her results are consistent with an earlier study that showed the unusually high default rates among loans originated in immediate pre-crisis years (2006 and 2007) did not occur only months from origination because those subprime mortgages were much worse than all loans that originated earlier. “The quality of loans was deteriorating for at least six consecutive years before the crisis occurred.” She said subprime risk was hidden by rising home values. But when equity dried up and pre-payment became too costly, loan performance sank. While the sample was reportedly limited, the analysis indicated that the number of defaults within two years of closing on subprime purchase-money mortgages was nearly equal to the number of first-time homebuyers who took a subprime mortgage. |