Mortgage Lenders Still Making High-risk Loans

Physician's Money Digest, July 2006, Volume 13, Issue 7

BusinessWeek

According to , many expertspredicted that because the housingmarket has quieted down and interestrates have gone up, there would be a slewof mortgage foreclosures and bank losses,but that isn't the case so far. In fact, delinquencyrates have begun to creep up,jumping to 4.7% in the fourth quarter of2005. And despite the slowing of the housingmarket, many lenders are still forgingahead with the aggressive loans theyrelied on during the housing boom. Although,in a way, this is good news for aphysician with subpar credit who is tryingto get a loan approved, the Federal Reserveis angry that lenders are persuadingborrowers to accrue even more debt byoffering such loan terms as low minimumpayments and little or no documentationrequired. The bad news is that repaymentterms on $1.3 trillion of adjustable-rateloans will go up this year and next, meaningsome borrowers will have to pay up to150% on their monthly payment. Thiscould lead to many borrowers defaultingon their loans, causing serious financialtroubles for aggressive lenders.