This is the VOA Special English Economics Report.
Financial markets had a rough week again as investors grew more concerned
about the United States housing market. Much of the concern is about home loans
to people with poor credit or little history of borrowing money.
Most homebuyers are considered "prime," or a high-quality credit risk. Yet
lenders have taken the risk of subprime
loans because those buyers pay higher interest rates.
The number and complexity of nontraditional home loans grew along with the
housing market. Now, that market has cooled. At the same time, many buyers, and
not just in the subprime market, are seeing their monthly payments go up.
Nontraditional loans often start with low payments for the first year or two.
The Mortgage Bankers Association reported this week on the condition of
eighty percent of home loans nationally. It says five percent of all mortgage
payments were at least thirty days late in the final three months of last year.
But more than thirteen percent of all subprime loans had late payments -- the
highest level in four years.
By the end of last year, fourteen percent of all home loans were subprime.
Total mortgage debt in the United States was ten trillion dollars.
Some experts worry that the problems could affect the wider economy. Congress
may act to control risky lending. And Senate Banking Committee Chairman
Christopher Dodd says federal aid may be needed to protect buyers.
If a buyer misses too many payments, a lender may try to reclaim the house
through a forced sale. Nationally, foreclosure rates increased in the fourth
quarter, but especially among subprime loans.
A number of lenders have already failed or left the business. Yet some may be
able to escape losses by passing their risk to others. Many lenders sell their
mortgages to investment banks. The banks resell the loans, creating trillions of
dollars in mortgage-backed securities. These are bought and sold on financial
markets. But some of these investments can be very risky if homeowners cannot
repay their loans.
Subprime loans are only part of the story, however. House prices have been
slower to rise, and in some places have dropped. Housing expert James Diffley of
Global Insights says prices for existing homes in California could drop sixteen
percent this year. He says other states including Arizona, Hawaii, Florida and
Massachusetts could have large declines as well.
And that's the VOA Special English Economics Report, written by Mario Ritter.
I'm Steve Ember.
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