Mortgage Meltdown

People all over the country are losing their homes, in rather startling numbers. Because of a meltdown in the subprime mortgage market, in Detroit, one out of every 21 mortgages foreclosed last year. In Colorado, 1 out of every 33; in Georgia and Nevada, 1 our of every 41. The national rate is 1 in 92, which last year meant a million households. Estimates predict another 2 million could lose their homes in the next few years.

As a result, subprime lenders — companies that lend money to people who wouldn’t otherwise qualify for loans because of bad credit history and the like — are shutting down or going bankrupt in record numbers. And this is causing scary ripples in the larger economy. Not just in the housing market, but on Wall Street, too.

How did this happen? The housing bubble is partly to blame. Bolstered by the hot real estate market, subprime lenders made loans to people who probably couldn’t afford them (and conversely, people took on loans they couldn’t afford, or thought they could afford but now can’t). Now that the market has cooled down and the terms of their loans have switched from their initial, enticingly low rate to a higher new one, people are defaulting on their payments. There are accusations of predatory lending, but also of unsophisticated consumers getting in over their heads. It’s pretty messy. (For a more complete and pretty accessible explanation, check out this report [pdf] from Congress’s Joint Economic Committee.)

We’re not entirely sure what shape this show is going to take yet, but we know we’d like to find a good “explainer guest” to sort out all the financial mumbo-jumbo. We’d also like hear the stories of people directly affected by the crisis. We’re tempted to take a race and class lens to this story, as minority homeowners and minority neighborhoods have been severely, and disproportionately, affected.

So tell us how this crisis has been affecting you or your neighborhood or your city, and help us figure out how to shape this show.

Ira Rheingold

Executive Director and General Counsel, National Association of Consumer Advocates

Guy Cecala

Publisher, Inside Mortgage Finance Publications

Mariah Crenshaw

Cleveland homeowner facing foreclosure due to subprime loan

Member of ACORN

Extra Credit Reading

Hearing on Subprime Mortgages: Clay on Race

Beth Ann Bovino, Left Out In The Cold: The Impact From The Sub-Prime Mortgage Collapse, 3 Quarks Daily, May 14, 2007: “While it is obvious that homeowner defaults hurt mortgage-lenders and homeowners, these defaults must be put in a broader economic context. Questions include: How will they affect the broader housing markets? Will it spread into the larger economy? Who will be hurt and how? What will the impact of sub-prime problems damage credit availability?”

Greg Ip and Damian Paletta, Regulators Scrutinized In Mortgage Meltdown, The Wall Street Union, March 22, 2007: “Changes in the lending business and financial markets have moved large swaths of subprime lending from traditional banks to companies outside the jurisdiction of federal banking regulators. In 2005, 52% of subprime mortgages were originated by companies with no federal supervision, primarily mortgage brokers and stand-alone finance companies.”

Robert Reich, The Fed and the Sub-Prime Lending Debacle, Robert Reich’s Blog, March 22, 2007: “The Fed’s decisions can either be a great boon to poorer Americans or a huge curse, depending on how responsibly the Fed manages the credit markets. In this respect, it’s done a lousy job in recent years. In the early 2000s, rates were so low that banks didn’t know what to do with all the extra money they had on hand. But instead of keeping an eye on bank lending standards, the Fed looked the other way.”

JP Smith, You remember the black home ownership rates Bush flaunted?, black…MYstory, December 20, 2006: “What Bush didn’t tell about black home ownership, or even home ownership in general, was that too many of these home were purchased with subprime loans. In other words, with loans having high interest rates and unreasonable terms.”

The Holy Fatman, In the Well, DUHHHH, department, Holy Buck, Fatman!, December 20, 2006: “Not many college students graduate with the ability to even balance their checkbook, pay off their credit cards monthly or open savings accounts, let alone IRA’s and 401K’s. They ruin their credit by the time they graduate and when the times comes to buy a home, they are meat for the subprime lending beast.”

Casey Serin, Last Foreclosure… No Houses, No Money, No Stereo, I am Facing Foreclosure .com, April 27, 2007: “Today I lost my last property to foreclosure. The worst part is that BOTH the first and second approved the short sale but the first (Countrywide) refused to give the buyer a small extension to close. They had a solid offer for $300,000 on the table!”

Alec MacGillis and John Solomon, Edwards Says He Didn’t Know About Subprime Push, The Washington Post, May 11, 2007: “Edwards said yesterday that he was unaware of the push by the firm, Fortress Investment Group, into subprime lending and that he wishes he had asked more questions before taking the job.”