SumPrime Woes Continue
03/22/2007

Senior figures in the U.S. mortgage industry showed a united front this week in an attempt to ease market fears of a meltdown in the subprime mortgage market. Lenders and financial markets were urged not to overreact to the crisis of confidence in these higher risk sub prime loans.

Angelo Mozilo, CEO of Countrywide Mortgage, the biggest U.S. lender, said “We may look back on this time and say that there has been a severe overreaction, and that exacerbated the problem,” he said.

There is no question that certain lenders were too eager to provide easy credit to people with a poor credit history. But there will always be a section of home buyers who will need more help to climb onto the property ladder.

The challenge for lenders is to provide these people with the means to buy homes while at the same time protecting themselves from excessive loan defaults. According to the The Mortgage Bankers Association, late payments on home mortgages rose to a 3 1/2-year high, with the biggest increase among subprime adjustable-rate loans. John Robbins, chairman of the MBA, lent his support to subprime lenders saying that this kind of borrower were good risks. “Eighty-six percent of subprime borrowers make their payments on time,” Robbins said.

He also remained sceptical about reports that more than 2 million homeowners could go into foreclosure. For that to happen, every subprime loan would have to be defaulted. The subprime lenders who are in trouble at the moment have learnt a harsh lesson from their eagerness at wanting to make quick profits from rising house prices.

Homeowners will now have less access to easy credit loans and they will find that lenders will be far more strict when assessing loan applications. But there must always be adequate access to credit for first time buyers because this feeds into the market as a whole.

The general feeling is that the U.S housing market is still sound because unemployment is still low and jobs are still being created and there are a lot of prospective buyers who have been waiting in the wings who may feel that this is the right time to buy.

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