Rich Default on Luxury Homes Like Subprime Victims (Update1) - Bloomberg.com
Jumbo loans are larger than what government-controlled Fannie Mae and Freddie Mac will buy or guarantee, currently $417,000 in most areas. Jumbo lending slowed in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly figure since Inside Mortgage Finance, a Bethesda, Maryland-based trade publication, started tracking the data in 1990.
Subprime loans were made available to borrowers who never proved they could make monthly payments on time. The loans accounted for more than 20 percent of the U.S. mortgage market in 2005, up from less than 8 percent in 2003, according to Inside Mortgage Finance.
Defaults by subprime borrowers began rising in 2007. Since then, financial institutions that had bet on earning cash flow from home loans packaged into securities have announced credit- market losses and writedowns of almost $1.4 trillion, data compiled by Bloomberg show.
Among all homeowners, 21.8 percent were underwater in the first quarter, Seattle-based real estate data service Zillow.com said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.
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