Foreclosure Crisis - Not Just a Subprime Problem
For many months, most of the foreclosure news has been about subprime mortgage loans, adjustable-rate mortgages and predatory lenders.
However, a new report by the HOPE NOW coalition indicates that foreclosure is no longer focused in the subprime market. In fact, the data shows that for the first time in at least a year, mortgage foreclosure is affecting more prime credit borrowers than subprime borrowers.
The HOPE NOW coalition began collecting mortgage foreclosure data in July 2007. Its new report is not good news for many prime credit borrowers.
According to the data collected, July 2008 marked the first time during the 12 months studied that prime foreclosure filings exceeded subprime foreclosure filings.
A report by HousingWire said that although the data only goes back to July 2007, it is very likely that this is the first time in a much longer timeframe that more prime borrowers faced foreclosure than subprime borrowers.
The data shows that for July 2008, 105,000 prime borrowers faced foreclosure while 92,000 foreclosure actions were filed against subprime borrowers. For prime borrowers, this was a huge leap from one year earlier when 51,000 prime foreclosure actions were filed. It was also a 10 percent increase over the previous month.
The stats for the same time period relating to subprime foreclosure filings show a 22 percent increase and approximately a 10 percent increase each month.
For both prime and subprime borrowers, the number of foreclosures was the highest in July 2008.
Experts feel that the amount of increased foreclosures, which have come earlier than the seasonally expected surge, is a sign that the foreclosure crisis is still far from over. Additionally, the jump in prime foreclosures may mean that things could get a lot worse for prime borrowers.
Many prime borrowers made use of mortgage workout plans during July 2008.
According to the data collected by HOPE NOW, 57,822 prime borrowers worked out repayment plans with their mortgage servicers during the month. These repayment plans accounted for 72.3 percent of all the workouts completed for prime borrowers in July.
For subprime borrowers, only 48 percent of financially-distressed homeowners were placed into repayment plans. For these borrowers, mortgage servicers seem to favor loan modifications rather than repayment plans.
In recent history, repayment plans and loan modifications have had limited success in preventing mortgage foreclosures. Moody's Investors Service reported on July 16 that 42 percent of subprime adjustable-rate mortgages modified during the first half of 2007 were once again 90 or more days delinquent by the end of March 2008.
If this statistic is any indication, the elevated number of prime borrowers now seeking mortgage workout plans is a red flag. Homeowners with subprime mortgages have already been hit hard by the foreclosure crisis, but prime mortgage borrowers now seem to be feeling the brunt of the backswing.