According to a new report (pdf) by the Mississippi Economic Policy Center, "Mississippi has the eighth highest foreclosure rate and the highest percentage of borrowers with past due home loan payments in the country. The high rate of delinquency coupled with a very high rate of subprime, or high cost, lending suggests that Mississippi is likely to experience increasing rates of foreclosures in the months to come," the MEPC said in a release.
I wonder how much predatory lending had to do with this.
The short answer is a lot of them were predatory, although the report doesn't really make that direct assertion. Instead, it's focused on trends. From page 5 of report (if got footnotes in it, so that's the odd numbers if I left any in there):
The Subprime Market
Mississippi has the highest rate of subprime lending in the country. In 2006, 36.9% of all first mortgages for owner-occupied single family homes in the state were subprime, according to Home Mortgage Disclosure Act data.
In a 2006 study, the Center for Responsible Lending (CRL) estimated that 2.2 million, or 15.4%, of all subprime home loans made from 1998 through 2006 will end in foreclosure. These foreclosed loans will cost homeowners as much as $164 billion.13 CRL projects that total foreclosures will climb from 9.8% for sub-prime loans originated in 2002 to 19.4% for loans made in 2005 and 2006.
As the current subprime mortgage crisis demonstrates, many of the subprime loans that have been made in recent years have included terms or used practices that have contributed to an increased risk of foreclosure. Some of the most harmful of these include payment shock, stated income or low documentation (low doc) loans, prepayment penalties, and the failure to escrow for taxes and insurance.
Payment shock – One of the most harmful features of many subprime mortgages is what is known as payment shock. This phenomenon occurs when a homeowner’s interest rate increases to an unaffordable level and is common among homeowners with Hybrid Adjustable Rate Mortgages (ARMs). According to the Consumer Federation of America, as of the middle of 2006, 81% of the subprime loans that were bundled and sold as investment securities were Hybrid ARMs. Hybrid ARMs in- clude a short initial period of fixed mortgage payments, after which the interest rate becomes adjustable, and the rate can (and usually does) increase. Many of these loans include a “teaser” rate (that is, an artificially low rate) for the initial payment, which usually increases significantly after the initial payment period expires. These loans are underwritten based on the lower initial payments instead of on fully amortizing payments. Thus, when the rate increases, homeowners experience payment shock and find themselves unable to afford the increased payments and facing foreclosure. A study released in March of 2007 projected that 32% of the Hybrid ARMs originated between 2004 and 2006 will default when they reset.
- Todd Stauffer
Also, for all you bloggers... there is an interesting twist to the law that says in MS home purchasers have certain rights (including a cap on fees for early sale it is in the code, look it up). Also included is the fact a substitute trustee cannot sell a persons home unless they agree in writing at the time of contract that a substitute trustee can sell the house in the event of a foreclosure. A provision that countrywide does not include in its mortgages.
Lay persons translation.
Almost every foreclosure sale of a countrywide mortgage foreclosure sales can be undone. Granted unless the property can be paid up to current it will be again sold....but if I had the time and the lack of need to earn a living I would undue every sale.... just to make this lender that: preyed on the uninformed, sold them bogus promises and even faked income on applications to make a sale and commission; PAY just to try to legally due things right and open themselves up for a LOT of problems.