On Tuesday, Countrywide Financial (Charts, Fortune 500), the nation's largest mortgage lender, attributed a big drop in profits to a spike in delinquencies among prime borrowers of "second-lien loans," including home equity loans and home equity lines of credit........................
In the past, mortgage delinquencies were tied to personal problems or basic economic reversals, such as a job loss. Today, many delinquencies can be traced to unaffordably high home prices.
"Unable to afford their own homes, [borrowers] turned to increasingly risky mortgage products," said Amy Klobuchar, a member of the House of Representatives from Minnesota, speaking Wednesday before a hearing of the Joint Economic Committee examining the national foreclosure crisis.
Some home buyers, caught up in red-hot markets and afraid of getting locked out of homeownership forever, overpaid for houses.
As long as prices escalated, they were able to tap the added equity in their properties to cover debts.
But now home prices are falling - off more than 2 percent from their highs, according to the Case Shiller home price index.
Meanwhile, lenders are cutting back on second-lien loans. When homes go into foreclosure, first-lien lenders lay claim to proceeds from a sale. Second-lien can get stuck with a total loss.
fused111 wrote:So is this good or bad news for a first time home buyer who will be shopping around one year from now?