Imperial County California, one of the States poorest counties located in an area north of the Mexican border in the bottom south-eastern portion of the State has the highest concentration of subprime and piggyback mortgages in the State according to a study released by Consumer Federation of America (CFA) in January 2008.

The CFA analyzed about 1.2 million mortgages in California, consisting of purchase and refinance transactions from the year 2006 and found that about 1/3 or 32.3% of the mortgages originated in the El Centro, CA MSA (metropolitan statistical area) were subprime loans.  The amount of subprime loans originated in the county was more than five times higher than most of the 28 metropolitan areas analyzed by the CFA.  California has 58 counties. 

Subprime lending rose substantially in the year 2006 to almost 25%, up from the 18.7% from 2005.  A large majority of these loans were adjustable rate mortgages (ARMs), many with a two year, low fixed interest rate that resets after two years that readjusts every six months or a year.  These types of mortgages are known as 2/28's in the industry since they are fixed for two years and then become an adjustable rate mortgage for the remaining 28 years.  The subprime loans originated in 2006 have already begun to adjust as of this writing and borrowers who have them will like face monthly payment increases in a declining real estate market.

On a National average only 24.0% of purchase borrowers from 2006 used a piggyback mortgage, those lending products that offer two loans.  The piggyback loan typically consists of financing of a first mortgage equal to about 80% of the value of the home and a smaller 2nd mortgage accounting for 20% to equal a combined total of 100% financing, otherwise known as Zero Down financing or 80/20 loans.  These creative mortgages were primarily used to help borrowers avoid Private Mortgage Insurange or PMI, which protects the lender in case of payment default.  PMI in recent years became a tax-deductible item as the need for safer, insured mortgages took a priority, as many piggyback loans were tied to 2/28 mortgages. 

California purchase borrowers using piggyback mortgages accounted for just over 37.0% and California piggyback borrowers were more than three times more likely to receive subprime loans as those without piggyback loans.  Meanwhile the Imperial County, as defined by the El Centro, CA MSA showed that nearly 1 out of every 2 home purchase borrowers used piggyback financing in 2006, an amount of 46.4% and the highest in the State.

Table 1 - California Owner-occupied Home Purchase Mortgage Lending 2006

Please share your comments regarding the CFA study and the results herein.  I am very interested in what you have to say.  You can read other news items I am covering from Imperial County, California on my other blog at http://blog.homeloans.cc or contact me at http://www.homeloans.cc