Sub-Prime Lending & Home Equity Loans Are Digging Consumers Deeper Into Debt
Tuesday, July 03, 2007SUSIE GHARIB: It looks like more consumers are falling behind on their home equity loans. The American Bankers Association says late payments on home equity loans rose to a 1.5 year high in the first quarter of this year. But during the same time period, more Americans paid their credit card bills on time. Payments are considered delinquent when they're more than 30 days past due. Despite that mixed picture, the bankers expect to see more consumers struggle as the housing market continues to slump.
PAUL KANGAS: The Mortgage Bankers Association said today that the percentage of sub-prime loans taken out by first-time home buyers rose from 12 to 15 percent during the second half of 2006, boosting the total of sub- prime loans to 47 percent of the home mortgage market. Analysts blame fallout from those risky loans for the housing market's decline. Stephanie Dhue looks at how sub-prim lending is impacting one community near Washington, D.C.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the Rose Valley development in Prince George's County, Maryland, the housing scene isn't rosy. While the builder is selling new homes, several homes are back on the market because the owners couldn't make the payments. Realtor Tyrone Whitby is trying to help sellers avoid foreclosure. He says 40 percent of his business now is working with lenders to negotiate a way out for the seller.
TYRONE WHITBY, NAT. ASSN. OF REAL ESTATE BROKERS: We're doing many more short sales. And by short sales means, we're trying to negotiate with banks to see if they would be willing to take back and sell a house and take back less than what they are owed, less than their total indebtedness. So a big part of our business is that.
DHUE: A third of loans made in Prince George's County in 2005 were 2/28 or 3/27 sub-prime loans, whose interest rates adjust higher after two or three years. Peter Tatian of the Urban Institute says many of these buyers counted on home prices to continue to climb.
PETER TATIAN, RESEARCH ASSOCIATE, URBAN INSTITUTE: It was a way for people to get into this fairly high priced market. So people who maybe didn't have the best credit history or maybe were trying to stretch themselves a little bit to try to get into a home were really relying on these sub-prime loans.
DHUE: Tommie Thompson heads the Prince George's County housing department. His office has started an outreach campaign to help troubled borrowers.
TOMMIE THOMPSON, DIRECTOR, PRINCE GEORGE'S DEPT. OF HOUSING: The first thing that anyone should do when they are experiencing a little trouble or if they think there is impending trouble is to contact their mortgage servicer, contact the mortgage servicer directly, because the mortgage servicer is one of the entities that stands to lose a great deal of money if that house goes into foreclosure.
DHUE: Fannie Mae economist David Berson says the worst is yet to come for holders of sub-prime mortgages.
DAVID BERSON, CHIEF ECONOMIST, FANNIE MAE: We anticipate that delinquencies and defaults have not yet reached their peak, probably not for another year will they climb to their peak, which suggests that the worst in the sub-prime market also hasn't occurred yet and probably also won't occur for another year or two.
DHUE: Realtor Tyrone Whitby says most of the lenders he deals with have set up loss mitigation departments, specifically to work out bad loans. With many sub-prime loans just beginning to reset, those offices are likely to get busier over the next year. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Fort Washington, Maryland.
GHARIB: Meanwhile, Deutsche Bank says problems in the sub-prime mortgage lending market could grow, but it doesn't believe those issues will lead to a broader financial crisis. Hugo Banziger, who leads Deutsche Bank's risk management unit, said today that write downs could go as high as the $90 billion range, but that hedge funds could easily absorb the loss. And he doesn't expect to see a repeat of the problems faced by Bear Stearns and two of its hedge funds.
