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RuSubprmMrLd
Tori Phillips, Universiy o Caliornia a Davis
Regulaions of subprime morgage lending pracices would beter edu-cae borrowers and hold lenders responsible for heir acions, herebydecreasing he defaul raes on subprime loans and lowering home fore-closure raes.
The subprime marke oers nancing o individuals wih he lowes credi scores.Because hese loans are riskier or he lender, hey are oered wih higher iner-es raes and sricer rules on renancing. Subprime morgages oer he beneo presening loans o hose who could no oherwise atain one, hereby increas-ing homeownership.Bu high deaul and oreclo-sure raes since 2006 haveled o he subprime morgagecrisis we are aced wih oday.This has led propery valuesin some areas o plumme,urher aggravaing he siua-ion. Many amily homes havebeen oreclosed under hesecircumsances, decreasing hepossibiliy o homeownership.Regulaions mus be se in or-der o preven his rom akingplace again in he uure. Lenders mus be required o qualiy buyers a he ullyamorized rae, raher han he easer rae, prepaymen penalies mus be regu-laed, and nancial lieracy educaion mus be provided o all borrowers.
History
Typically, subprime loans are o-ered as adjusable rae morgag-es (ARMs) where paymens onhe loan sar a one ineres rae,and are increased wihin a cerainamoun o ime. Ofen, lendershave only qualied borrowers ahe iniial rae, so borrowers wereno able o make paymens oncehe higher ineres rae kicked in.Furhermore, hese loans were
Key Facts
According o he Morgage Bankers Associa-
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ion, 14 percen o all loans are subprime.In 2004 homeownership reached a highpoin
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o almos 70 percen, bu rom 2006 o 2007he number o new houses buil was downmore han 26 percen and exising house saleswere down more han 12 percen.In 2007 subprime loans made up 7 percen o
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morgages bu 43 percen o deauled loans.In 2005 a sudy conduced by Freddie Mac
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and Roper Public Aairs showed ha 61 per-cen o delinquen borrowers did no knowha here are workou opions.
Talking Points
Poor subprime lending pracices have
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caused high home oreclosure raes, es-pecially in low-income areas, leaving manyamilies wihou homes.When oreclosures are common in a given
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neighborhood, propery values drop im-mensely.This policy oers a soluion o boh he
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immediae and long-erm problems associ-aed wih he subprime morgage crisis.
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