The FBI released its annual report (http://www.fbi.gov/publications/financial/fcs_report2007/financial_crime_2007.htm) on the state of financial crimes in the U.S. last night. As you might expect, it’s not a pretty picture.
According to the general overview, there has been a spike in the number of housing crimes involving subprime housing market. That in and of itself isn’t a huge surprise. If you can’t afford to buy a home with a traditional lender, you used to be able to go to the subprime market, where the loan officer wouldn’t ask you any questions and you agreed to pay insanely high interest rates and fees all in the name of achieving the American Dream of homeownership.
If that sounds a little cynical, I’m sorry. But we’ve been railing for years about how little sense it makes to give a $500,000 loan to someone who earns $50,000 a year. That doesn’t make sense no matter HOW many times you crunch the numbers.
But I digress. According to the FBI, the total amount of subprime loans outstanding is $1.3 trillion. The total amount of mortgages outstanding is $4.5 trillion. So despite what you hear about how small a part of the picture subprime mortgage defaults are, this number bring is home: Roughly one-sixth of all mortgage loans are subprime loans.
That doesn’t mean that they’re all going to go under. But as subprime lenders have had to buy back these loans (or take back the properties), they were hoping housing values would continue to go up. Instead, housing values are collapsing (see next post). The FBI contends that mortgage fraud is a huge part of these subprime loans, so the fallout will continue.
Folks, it isn’t just about loan resets. This problem goes deeper and will take longer to unravel.
I’ll be talking about this as I fill in for Clark Howard today, 1p to 4p on Newstalk 750 WSB. Listen live at WSBradio.com.
Published: May 23, 2008