Mortgage Defaults: Latest Woe
For Housing (Cont'd)

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"It's not like subprime loans are going to go away completely -- it won't be anything that drastic," said George. "But I think there is going to be an impact on home purchases, even if it's hard to quantify at the moment. In the past few years there's been an explosion in mortgage credit. It makes sense there would be some retrenchment."
Mike Fratantoni, senior economist with the Mortgage Bankers Association, said there


"It's not like subprime loans are going to go away completely -- it won't be anything that drastic," said George. "But I think there is going to be an impact on home purchases, even if it's hard to quantify at the moment. In the past few years there's been an explosion in mortgage credit. It makes sense there would be some retrenchment."

Mike Fratantoni, senior economist with the Mortgage Bankers Association, said there would be a greater risk to the housing market if defaults were rising across the board, noting that so far the rise in borrowers who are late on mortgage payments is still mostly in the subprime sector. And he said even the growing problem in the subprime sector is not a big shock for the market.

The rate of subprime borrowers who are more than a month late on a mortgage payment was 13.2 percent in the third quarter of 2006, the latest numbers available, up from a 10.5 percent delinquency rate in the third quarter of 2005.

The overall mortgage delinquency rate was 4.7 percent in the third quarter, just slightly above the 4.4 percent rate of a year earlier, when it was a historic low.

"We don't agree they (subprime home buyers) are all going to be cut off from mortgage credit," said Fratantoni. "It is going to have something of a negative effect, but that's not a big enough part of the market to be a macro concern."

Fratantoni said the mortgage securities market will make the proper adjustments based on news about defaults and losses. He said the more serious problem for the housing market is if there is legislation or regulation that restrict such loans because of concerns about the risks to borrowers.

"We are watching to make sure no regulatory action takes place to choke off the supply of this type of financing," he said. "This is an important source of mortgage credit for borrowers."

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