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Daily Real Estate News  |  December 20, 2006  |   Fallout Seen From Subprime Lender Abuses
More than two million subprime mortgage loans that lenders made during the boom years are in foreclosure, putting at risk $164 billion in wealth accumulation, according to a study by the Center for Responsible Lending.

“We are in the worst foreclosure crisis in modern American history,” Michael Calhoun, the organization's president, said at a recent press conference releasing the findings.

The study found that one in five households with a subprime loan now face losing that home. The study attributes that finding to aggressive tactics used by subprime lenders who prey disproportionately on minority households unfamiliar with the financing system but who are eager to build wealth through homeownership.

“We are talking about unwinding much of a generation’s effort to secure a place in the middle class,” Calhoun said.

One of the biggest problem loans has been what the mortgage industry calls the “exploding ARM,” a loan that after a short low-rate fixed period adjusts upward without regard to the direction that interest rate indexes are moving. Therefore, even if interest rates are heading down, these borrowers can face monthly mortgage payment increases, typically in the 30-40 percent range.

Real estate professionals can be in a position to help keep borrowers from getting locked into bad loans, but since the lion’s share of these loans are refinancings, real estate professionals typically don't have a chance to intervene, says Keith Corbett of the Center for Responsible Lending.

“The gatekeeper to the subprime market is the mortgage broker, making recommendations to borrowers," he says. "And mortgage brokers are among the least regulated participant in the marketplace.”

Trapped borrowers are a problem the NATIONAL ASSOCIATION OF REALTORS® has been addressing with its new series of brochures that practitioners can give to customers warning them to look carefully at all financing options before making a decision.

“We’re encouraging borrowers to contact their real estate professional right away,” says NAR President Patricia Vredevoogd Combs, who spoke at the press conference. “Borrowers still have an opportunity to salvage their situation by marketing their loan [to an investor] — that is, if they’re not upside down already."

NAR published the brochures in partnership with the Center for Responsible Lending but didn’t participate in CRL’s subprime foreclosure study. You can access NAR's brochures online at

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