Caution: Subprime Loans Not Working
Families affected by the housing market's downturn-who have lost their homes to foreclosure, or who are filing bankruptcy to save their homes, or have been evicted by an owner's foreclosed-on property, are likely grateful for the various legislative action being taken by politicians to address these problems.
They may be less enthusiastic about the mortgage lending industry's more modest approach to the foreclosure crisis.
A recent study published by the Freidman, Billings, Ramsey Group (FBR Group) on the default rates of mortgage loans originated in 2007 suggests that homeowners may have more trials ahead, according to the New York Times.
Reports indicate that analysts were concerned last summer because subprime mortgages were defaulting at higher rates than ever in the industry's history. Of the loans borrowed in 2006, sources say, 5.63% had already reset by August-an unprecedented rate for mortgage loans.
But, by August, 2007, 8.05% of loans had reset. This means that borrowers faced higher interest rates less than a year after taking out their loans.
Apparently, analysts chalk up this increase to the behavior of mortgage lenders, many of whom continued to practice lax lending standards until this summer, even though data showed that subprime loans had been defaulting at alarming rates.
Since this summer, reports show, most of the major lenders (Moody's, Countrywide, Standard & Poor's) have started enforcing more stringent lending standards.
But experts believe that financial trouble (including foreclosure, bankruptcy, and eviction) caused by high default rates and rapid resets will linger for some time, according to the Times.
Foreclosure and the Filing Bankruptcy Option
Many homeowners faced with foreclosure choose to file for Chapter 13 bankruptcy rather than lose their homes. 
For borrowers with resetting ARMs, in a housing market with stagnation and falling property values, this is often the only choice for those who want to keep their houses.
But for some people, even filing bankruptcy can't help their foreclosure troubles-renters, even if they've paid their landlords promptly, can be evicted if property goes into foreclosure, reports the Boston Globe.
Beyond the individual financial strain on families caused by the housing slump, some states are facing economic difficulties as employees of lending and real estate businesses lose their jobs.
The FBR study notes that speculative subprime loans and adjustable rate mortgages have shown themselves as unrealistic and unsustainable in a market where property values aren't on an upward journey. At last, investors are beginning to react to this finding.
In an effort to combat the problems currently plaguing America's mortgage industry, many major lenders now reportedly offer only 80-90% of home values in loans and demand proof of income before issuing a loan. Some would consider these measures-which should ensure that borrowers are not given loans difficult or impossible for them to repay-plain old smart lending.
The value of outstanding loans in the US, as determined by the FBR study, comes to $10.6 trillion.
No wonder Wall Street has allegedly decreased its investments in riskier loans. According to reports, Wall Street securitized 50% more loans in the first eight months of 2006 than in the first eight months of 2007.
Though many struggling homeowners may wonder why mortgage lenders have waited so long to change their practices, the overall message is positive: lenders are finally acting with more caution.