The Prime Problem
August 23rd, 2009 Categories: Real Estate News
Just recently I have been reading and writing a lot about the fact that the big prime loans, written to borrowers with verified and mostly higher incomes, (document-able) and great credit scores are now the new wave of foreclosure starts.
So now, prime adjustable rate and even thirty year fixed, conventional,”Cream-Puff” loans are troubled. These were written to very qualified, mostly well educated borrowers, most with dual incomes.. and are now blowing up.
Last Monday, I read and blogged about the Mortgage Bankers Association’s scary report on mortgage delinquencies and foreclosures. It showed lots of info on how prime mortgages are now replacing subprime mortgages as the problem. I found a Wall Street Journal article about this today, which includes this great chart:
Remember, these loans were written to people who really did have a high enough income and credit score to qualify for the loan— not ‘stated’ income but documented income. So some of these not only picked a better loan product than the adjustable rate timebombs, but they all really did have enough income to comfortably pay for the home.
So why don’t banks aggressively pursue loan modifications with these prime borrowers? Well, remember the political cry of a few years back? “It’s the economy, stupid”.
So heres what the problem is– a great point in the WSJ story:
But modification programs may not be able to help the growing number of borrowers who are falling behind on their payments because they are losing their jobs. Most loan-modification programs have been designed to help borrowers with loans that reset to higher payments or with high debt-to-income ratios.
