Mortgage Lending

To read about upcoming changes to the mortgage market, see this blog post.

For many decades, the American mortgage was widely respected as an icon of hope and security, serving as a valuable financial tool for millions of families.  Today, in the wake of the worst reckless lending spree ever, home loans have become a source of fear and uncertainty.  Analysts project that one in six American households with a mortgage will face foreclosure during the next four years – and 8 million will end up losing their homes.

The subprime mortgage market that wreaked so much havoc on our economy is largely inactive—for now.  But it is essential to enact reforms that will prevent another explosion of predatory lending when the economy recovers.  While many states have passed stronger protections against  abusive mortgage lending, their powers are limited and federal legislation is needed.

In an uncertain market where consumer protections remain weak, it is important to (1) work with a reputable lender who answers your questions completely, and (2) arm yourself with facts.

• Facts and Stats
• Mortgage Lending and the Economy
• Predatory Mortgage Lending Practices
• Sources for More Information

Mortgage Lending Facts and Stats

• There were 3,157,806 foreclosure filings (default notices, auction sale notices and bank repossessions) in 2008, an 81% increase from 2007.  One in 54 homes received a foreclosure filing.
• One out of five subprime mortgages originated during 2005 and 2006 will end in foreclosure.  Altogether, over 8 million homes will be or have been lost.
• In mid 2008, analysts predicted that over 40 million homes not facing foreclosure would decline in value by an estimated $352 billion as subprime foreclosures lower the prices of surrounding homes.
• Subprime, high-interest and high-fee mortgage lending grew from 8% of total mortgage lending in 2003 to 28% in 2006.
• Of all subprime mortgages originated from 2004-2006, 90%  came with an exploding adjustable interest rate, 70% come with a pre-payment penalty, 75% included no escrow for taxes and insurance, and over 40% were approved without fully documented income.
• More than one half of all African American homebuyers and over 40% of Latino homebuyers received a subprime mortgage in 2006.  In comparison, about one fifth of white borrowers received a subprime loan that year.

Mortgage Lending and the Economy

In recent years, investors on Wall Street were very eager to buy American mortgages, including high-interest subprime mortgages.  Mortgage brokers and lenders generated mortgages with Wall Street in mind – not the borrowers receiving them – and sold them quickly after originating them.  Wall Street investment banks used the subprime mortgages as the basis for creating a collection of highly complex securities, earning huge fees every step of the way. Ratings agencies rated even the riskiest of these mortgage-backed securities with AAA (the best) ratings, and the government did not step in to investigate or regulate this exploding market.

When housing prices began to fall and subprime mortgages began to default in ever greater numbers, the whole elaborate financial superstructure collapsed and fallout has resulted in the worst economic crisis since the Great Depression of the 1930s.  Without the epidemic of irresponsible subprime lending, the current economic crisis would not have happened.

Visit the Center for Responsible Lending to read more.

Predatory Mortgage Lending Practices

More information about mortgages
 

Studies, reports, and more data about mortgages

AFFIL is grateful to the Center for Responsible Lending for their help with this page.
Last Update:  January 2009.