Gap Between Prime and Subprime Foreclosures Narrowing
The foreclosure crisis, which hit the subprime industry at the beginning of 2006, has now crossed-over to the prime mortgages. As the non-profit alliance HOPE NOW reported that for the month of July, about 105,000 of the 197,000 foreclosure filings originated from prime mortgages.
On the other hand, data on completed foreclosure sale transactions showed that the numbers are still higher for the subprime properties, but the gap is rapidly narrowing.
Although it is more likely that subprime borrowers lose their homes to foreclosure, the current situation in the housing industry is just showing how widespread the foreclosure problem really is.
Of course, this is expected considering that more and more homeowners are having trouble with their mortgage payments because of the rise in fuel prices as well as generally weak economic condition of the country. To make matters worse, the large inventories of homes for sale have already driven home prices down, resulting to homeowners losing much of the equity they have on their homes.
For these reasons, many troubled homeowners are trapped between paying a mortgage due they can no longer afford and selling their homes at an amount that is less than what they owe the banks.
Last year, HOPE NOW started tracking the ratio of distressed homeowners who avoided foreclosures versus foreclosure sales. It started with 3-0 and now it is at 2-1. Another sign that the crisis may still be around for a long time.
Subprime mortgages are mortgages taken out by borrowers with less than perfect credit records. Because of the practice of predatory lending, many of these borrowers got approved for loans that they really could not afford. Plus, most of the mortgages belonged under the hybrid type that involved incentives such as no down payment, interest only payment and the very popular, adjustable rate mortgages.