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How 7% of Mortgages Toppled the Market

As the issues with the subprime mortage mess continue to unravel at large and small companies across the US it is interesting to take a look at the numbers. When we look back at the amount and types of loans made we see a simple fact. That only 7% of the loans that were financed were Subprime Adjustable Rate Mortgages. Most loans were fixed rate prime loans for fully qualifed buyers.

Percentage of Loans

Yet today the numbers show that those 7% of loans have turned into the largest percentages of foreclosures and an have toppled major banks and lenders across the US. This smallest percentage of loans have spurred buyouts, bailouts and changed the ability for the buyers who qualify for prime loans to have to jump through more hoops than they have ever seen.

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Percentage of Foreclosures

This small percentage of loans will eventually cost the home owners who are making their payments on time thousands of dollars in new taxes and higher assessments. Yet the CEO of Countrywide managed to have made a salary of $19.2 million and walk away scott free. Go figure.

*Data compiled from Mortgage Bankers Association

Posted by Cindy Jones-Northern Virginia Real Estate & Military Relocation Services on 07/15/2008 08:30 AM

Comments (15)

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15 Comments on How 7% of Mortgages Toppled the Market

JUL

2008

Good analysis. The CEO of Countrywide hasn't walked away yet, scott free. He is being sued by at least 2 state DAs

Well looking at it that way is very eye-opening, isn't it? We all know about the Subprime ARMS, but look at the percentage of foreclosures on the prime arms. Could it be too many jumps in the interest rates too quickly - and not just subprime ARMs that is the issue? Also, when jobs are being lost every day by folks that make very large salaries, foreclosures are bound to increase in all categories. I am hoping this turns around soon....

Cindy, you would think that a CEO's severance package would have some connection to the profit made for the company, wouldn't you? I can only assume that this severance was based on previous contractual bonuses, stock options, etc. that could not be rescinded. Too bad.

I am horrified at the lack of regulation which allowed this to happen! It looks like the law applies only to some in this country. We see this type of thing over and over -- lobbyists make sure there are no regulations in place, the taxpayers have to bail out the offenders -- and the offenders (most of them) live happily ever after!

In my opinion, lenders failed to hedge themselves by allowing those 80/20 loans -- which effectively circumvented PMI; the purpose of PMI is to offset default losses. As you now see, mortgage insurance would have eased this problem. PMI is insurance.

The solution to ARM's is just too simple, and they won't do it. Quit adjusting for now. It doesn't take a brain surgeon to figure that out. But it has become very plain to me from my many conversations with Realtors and Loan Officers that the Banks are in business to stab themselves in the foot as many times a day as possible, and they are bleeding to death because of it. The decisions I see being made on a regular basis couldn't be any more idiotic than if they were purposely planned. I have to wonder what is going on behind the scenes, as something smells very fishy in my opinion.

It is amazing how one small segment of the mortgage industry could lead to such a mess.

Joe-I hope that more than 2 DA's go after him but I'm sure that he is protected by some cloak of invisibility.

JUL

2008

Maria-It does seem that lenders would have figured out that freezing rising interest rates at a point where the owner could make the payments would have made sense and cheaper than owning the house themselves.

Brian-I guess one would have to draw a line and say from x year forward you may have had a profitable company but the profit was created by writing bad loans. But these packages are usually written in stone and even if he gave the money back it wouldn't save the thousands of owners who know are in trouble.

Joan-I've been watching (from afar) one homeowner that I know was able to walk away from an overleveredged home with over 100K in "debt" and they are living a nice life with multiple cars in a top notch rental. Meanwhile I'm paying extra assesments on my property for all of the folks who have done the same thing in my condo building. It doesn't seem quite fair.

Stephen-everyone was looking for an edge to help buyers "qualify" without having to take out PMI that wasn't tax deductable. Now it is in certain circumstances and it doesn't seem like such a bad thing to pay.

Gregory-it does seem to be a simple solution. Freeze the interest at a point where the homeowners could make their payments. Cheaper than foreclosure and certainly cheaper than the bank having to own and maintain the home. I tried to negotiate with the bank for one owner who wanted to do just that. They couldn't make the new adjusted payment and a partial payment didn't cut it. So they own the home now.

Pat-and of course there is more to come!

Good point. Is amazing what happened. I still think that the buyers and borrowers were more of the problem. We cannot say that these people were so naive and innocent. Many of them overstated their income and assets so they could get loans. The mortgage companies may have allowed it to happen but what about the people who CHOSE to purchase a home AND had a buyers agent representative along the way ? The buyers agent must have had some idea about the loan program and the qualifications of the buyer as well. Not to say that some mortgage loan officers were sharks and unethical - of course there were. But people still made the decision to purchase. People need to take accountability for their actions.

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