Subprime lenders feel the heat especially in the Golden State

Subprime loans have been thrown into the media light recently in wake of the growing number of nationwide foreclosure. Stricter underwriting guidelines are being implemented by governmental agencies to protect both subprime lenders and borrowers from feeling the damaging effects of default and foreclosure.

But the damage has already been done for many mortgage origination companies that specialize in subprime lending throughout the country, especially in the Golden State.
"Bell Tolls For Subprime Lenders And Loans," written January 5, 2007 by Broderick Perkins and published in Realty Times, provides an extensive list of the mortgage companies that are quickly realizing the dangerous risks involved with subprime lending.
"This week Middletown, CT-based subprime lender Mortgage Lenders Network USA (MLN) pulled the plug on its loan originating operations after growing from 7 to 1,800 employees in 10 years."

Even more established companies are feeling the heat of the millions of dollars of defaulted loans within the past year or so and in fact, are melting.
"Considered the 11th largest subprime mortgage company, feeding some 12,000 brokers, Agoura Hills, CA-based Ownit Mortgage Solutions bought the farm in late 2006. It recently filed bankruptcy to stave off investors including Merrill Lynch & Co., JPMorgan, Chase & Co., Credit Suisse First Boston and other mortgage purchasers who were demanding Ownit own up and buy back more than 5 million in loans on which borrowers had missed payments."

As subprime loan defaults increase, no mortgage company is safe. Perhaps, the most trouble fact about the damaging results of foreclosures and defaults is that this may only be the beginning.

Subprime loans grew in popularity during the great housing boom from 2000 to 2005 as many people who were not quite in good enough financial health to purchase property, did so via a subprime loan in fear that the boom would make property too unaffordable in the future.

The stipulations of these subprime loans were that they offered low monthly payments for either the first three or five years and would then reset to higher payments after the introductory period ended. This is when people began to default on payments. So, even though subprime loans have subsided a little more recently due to more knowledge and stricter underwriting, there will still be many more defaults over the next three years.
"Early last year, the nation's largest subprime lender, Ameriquest Mortgage, agreed to a record 5 million predatory lending settlement and then proceeded to cut 3,800 jobs and shutter branches."

Regardless of warnings and strict underwriting guidelines though, subprime loans will always create foreclose risks as long as they are in existence. The solution may be to wipe out the subprime option. Many California subprime companies are probably wishing they stuck to the more traditional market.
"Among more than 400 metropolitan areas tracked in the center's study, the Top 14 metros with the greatest growth in subprime mortgage failures in 2006 were all in the Not-So-Golden State and included in the top five spots, No. 1, Santa Ana-Anaheim-Irvine; No. 2, Santa Barbara-Santa Maria; No. 3, San Diego-Carlsbad-San Marcos; No. 4, Santa Rosa-Petaluma; and No. 5, Napa."



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