Investors Uneasy About Subprime Mortgages as Delinquencies Increase

The subprime mortgage industry is showing increased evidence of contraction, losses, and buyer delinquency and default. Countrywide, the nation’s largest lender and one of the bigger players in the subprime market, reported that delinquencies rose 19% when compared to the previous year. One website is reporting that 26 subprime lenders have gone out of business or been swallowed up by another lender during this short year. Analysts worry that a large amount of hybrid ARM subprime mortgages will convert from the fixed rate to an adjustable rate in the coming year and borrowers will struggle with the ‘payment shock’ given the higher rates. Investors are uneasy about buying subprime mortgages on the secondary market and lenders have reacted by tightening their underwriting guidelines. It will be more difficult in the future for borderline borrowers to obtain credit to purchase a home, especially through 100% financing products–also due to investors concerns with slowed real estate appreciation and depreciation in some areas of the country.

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