Several large mortgage companies have stopped making new loans, and others have tightened lending standards.
Hundreds of thousands of families who bought houses in the last two years — using loans with low teaser interest rates and no down payments — are now losing them.
Their short tenure as homeowners calls into question whether the nation’s long drive to increase homeownership — pushed by both public policy and financial innovations — has overstepped some boundary of demographic and economic sense.
The nation’s homeownership rate has increased by only about 1.4 percentage points since 2000, to almost 69 percent last year.
But subprime mortgages — granted to borrowers with weak, or subprime, credit histories — played a big role in achieving those levels.
This push, however, has meant intense financial strain for many families. Subprime borrowers will spend nearly 37 percent of their after-tax income on mortgage payments, insurance and property taxes this year, according to estimates by Mark Zandi, chief economist of
Moody’s Economy.com, drawn from Federal Reserve data.
This is about 20 percentage points more than prime borrowers and 10 points more than what subprime borrowers paid in 2000.
When the housing market started weakening, subprime borrowers were the first to feel the squeeze. Almost 8 percent of subprime mortgages — more than 450,000 loans — were either in foreclosure or in arrears of more than three months in the fourth quarter of last year, according to the mortgage bankers.
Their unraveling means not only a string of failed lenders. Homeownership rates have slipped, and many low-income families, who dedicated meager savings toward a stake in their first homes, are facing foreclosure.
