The recent rise in mortgage foreclosures, fueled by subprime lending,
seriously threatens stability and revitalization across America. With
interest rates at historic lows during the recent real estate boom investors
poured trillions of dollars into mortgage securities in search of higher-yielding
assets. Now, possibilities of a national recession loom large. Mortgages
form the financial underpinnings of the nation’s housing market and
allowed over two-thirds of households to own their own homes. The flush
real estate times of the 1990’s and 21st Century allowed many homeowners
to buy homes or tap into the equity of their properties which drove
home prices up. Now, mortgage defaults and foreclosures are rising and
homeownership rates falling. As many as 2.2 million American homeowners
are at risk of defaulting on loans and losing their homes because they
cannot afford to repay or refinance their loans because home prices
are falling. Traditionally, banks made and held home loans with money
from local deposits. But over the last 30 years, financing for mortgages
has increas-ingly shifted to investors in the bond market. High-cost
subprime mortgages, loans to people with blemished credit records or
little experience with debt have grown. Subprime borrowers (below "A"
rated credit) are charged a higher fee to compensate for their greater
risk of delinquency and higher costs of loan servicing and collection.
The majority of subprime loans are refinance loans and ranged from 74
percent of subprime loans in 1996 to 65 percent of subprime loans in
2000...