Foreclosure Risk Shadows Subprime Borrowers

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A recent survey indicates up to one in five subprime mortgage loans may wind up in foreclosure. Subprime mortgages are costlier loans made to borrowers with shaky credit.


Our business news starts with foreclosures.

A consumer watchdog group is warning that more than two million homeowners are in danger of losing their homes to foreclosure. To blame? High-risk mortgages and a slow down in the housing market.

NPR's Scott Horsley reports.

SCOTT HORSLEY: The Center for Responsible Lending warns that as many as one in five households with subprime mortgages are likely to face foreclosure. In many cases because the borrowers were sold mortgages they simply couldn't afford. Such mortgages often start out with low monthly payments, but quickly adjust upwards. Center president, Mike Calhoun, says so long as home prices were rising, borrowers had the equity to refinance when their loan got too expensive, but not anymore.

Mr. MIKE CALHOUN (President, Center for Responsible Lending): The refinance escape hatch is closing very quickly on a large number of families.

HORSLEY: Calhoun says foreclosures hurt not only the borrowers who lose their homes, but whole neighborhoods where prices are dragged down as a result. Subprime mortgages made the borrowers with bad credit, now account for fully a quarter of new loans. Calhoun says too often mortgage brokers are rewarded for offering these high-risks loans, then reselling the loans to investors before any problems appear.

Mr. CALHOUN: Borrowers don't realize when they take that loan, they're rolling the dice with a one out of five chance that they'll lose their house.

HORSLEY: Calhoun says mortgage brokers should only be allowed to sell loans that can reasonably be repaid. And investors should discourage high-risk loans by refusing to buy them. He also recommends flexible payment plans and other assistance for distressed borrowers so they can avoid losing their homes to foreclosure.

Scott Horsley, NPR News.

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