Industry NewsMortgage

Dirty little mortgage secret

Risky real estate loans, looser standards may lead to trouble
Published on Sep 29, 2005

"A house built on sand" might be the best way to describe the foundation of today's exuberant housing market, as sub-prime mortgage loans and looser underwriting standards foreshadow trouble for lenders down the road. Rising interest rates could lead to higher defaults, and lenders of newer, riskier loan products could get hit hard if borrowers default on loans that end up being worth more than the homes. "Certainly groundwork has been laid that could lead to problems," said Keith Gumbinger of New Jersey-based financial publisher HSH Associates. And Economy.com, an independent research provider, says the overall delinquency rate for mortgage loans "is pretty much a straight upward path in delinquency between now and the end of 2007," according to Celia Chen, its director of housing economics. The situation began, many say, when home loan lenders in a market with too much liquidity pushed to find more customers. And find them they did: the U.S. had its two biggest years of total reside...

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