Subprime Times

by Abigail Knowles Wolfe (BPRW)

The word “subprime” has been high on our radars lately with economists and lawmakers alike struggling to find an appropriate solution for the current mortgage meltdown crisis taking place in the United States. A subprime loan is typically offered to individuals who do not qualify for loans from traditional lenders because of low credit ratings, or other factors that indicate they might default on debt repayments. These loans are offered at a rate above prime or with higher interest rates than those offered on traditional loans often translating to thousands of dollars worth of additional interest payments for the loan recipient.

The over riding concern with subprime loans is that they carry low interest rates for the first two or three years, yet after this time period of affordability has passed interest rates can increase every six months carrying mortgage payments much larger than initially expected. According to the nonpartisan research and policy organization “Center for Responsible Lending,” around 20% of subprime mortgages issued between 2005 and 2006 are expected to end in foreclosure according to a December 2006 study.

Predatory lending is a term being thrown around as economists and observers of the credit industry comment on the foreclosure situation facing the nation and the states of Nevada, California and Florida most of all. Furthermore, it has been reported that minorities have been targeted for subprime loans at a much higher rate.

Let us hope that in the future laws and regulations will be put in place to avoid foreclosures, and predatory lending to begin with. Foreclosures in the subprime mortgage market hurt the economy as well as the individuals losing their homes to a system that may not have been put in place with their best interests in mind.