America's Rental Housing: The Key to a Balanced National Policy
THE MORTGAGE MARKET MELTDOWN
Soaring foreclosure rates are one of the unintended side effects of extending homeownership opportunities to higher risk households with limited incomes and wealth. Designed to expand access to mortgage capital for these borrowers,subprime lending helped to fuel the decade-long homebuying boom. But as early as 2004, the number of subprime loans that were seriously delinquent (with payments 60 days or more late, and/or just entering into foreclosure) had jumped to over 260,000, devastating many low-income and minority communities—particularly in the industrial Midwest. But because the performance of prime loans remained relatively stable, the uptick in troubled subprime mortgages had little impact on national mortgage markets. But as more and more households struggled to buy in the face of rapidly rising home prices, the number of seriously delinquent conventional mortgages continued to climb—more than doubling from 2004 to 2007 to well over 1.3 million (Figure 1). Various forms of nontraditional and higher-priced subprime loans were particularly vulnerable. The Mortgage Bankers Association estimates that over 12 percent (or some 750,000) of all subprime loans were seriously delinquent by the end of 2007. Although the share of troubled prime mortgages was only 1.67 percent at year end, this translates into nearly 580,000 seriously delinquent loans—an increase of 143 percent from the 2004 figure.
