March 13, 2007
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NEWS: Are Bad-Credit Mortgages a Dead End?American lenders are looking in consternation across the pond regarding the future of the sub-prime mortgage industry. Already a high-stakes proposition for lenders, despite high interest rates and strict terms, the alarming trend towards foreclosure is becoming more and more evident. In distressing news, it is estimated that a full 20% -one in five- sub-prime mortgages will end in repossession of the property in question, to the tune of $164 billion in losses.
Up until recently, an estimated 2.5% default rate was considered the practicing standard for the industry. British bank HSBC blew that percentage out of the water last week, however, when it revealed year-end losses of $10.5 billion, some $2 billion of which came from its sub-prime mortgage sector. HSBC estimated that 6% of its second-mortgage loans were more than 60 days in arrears, which is three times the amount in the same situation a year ago.
With defaults rising and consumers in crisis, experts are warning that we have yet to see the full effect of this trend. Right now, the mortgage trouble is huge in Britain – it may just be a matter of time before it blows up in America, as well.