As many as 2.2 million Americans with subpar credit could lose their homes through foreclosure over the next several years, a new report said.
A mortgage banker's group called the report pessimistic.
Nationwide, subprime loans, which once made up just a small fraction of the mortgage market, accounted for nearly a quarter of loans written in the first 10 months of the year, according to the report released Tuesday by the Center for Responsible Lending.
Subprime loans are made to borrowers who are considered high risk because of low credit scores.
"Subprime lenders are selling the most dangerous loans to the most vulnerable borrowers," said Michael Calhoun, president of Center for Responsible Lending, a nonprofit research and policy group. "One in five families who get subprime loans today will lose their homes to foreclosure."
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The Mortgage Bankers Association, a trade group that represents the lending industry, says the Center for Responsible Lending's numbers offer a worst-case scenario. The association estimates that subprime loans account for 14 percent of the total number of mortgages outstanding.
"They're picking the most pessimistic scenario to draw their conclusions," said Doug Duncan, chief economist for the Washington group. "We don't share that degree of pessimism."
Duncan's group estimates that 50 million Americans have mortgages and that about 1 percent of all homeowners are actually losing their homes through foreclosure. The Center for Responsible Lending's analysis suggests that 4.4 percent of subprime borrowers alone will lose their homes to foreclosure.
The Mortgage Bankers Association noted in a report last week that subprime borrowers are falling behind in their payments more rapidly than any other group. The delinquency rate for subprime borrowers jumped to 12.56 percent in the third quarter of 2006 from 10.76 percent in the third quarter of 2005, according to the trade group's quarterly survey, which examined 42.6 million prime and subprime loans.
In Arizona, the delinquency rate during the third quarter was 7.46 percent, below the national average but an increase over the 5.96 percent in the second quarter of 2006.
There were 1,097,078 loans serviced during the third quarter of 2006 in Arizona. Of those, 2.93 percent of the homes had payments that were past due, an increase over the 2.44 percent of homes with late payments in the second quarter of 2006. In the third quarter, about 1.2 percent of all Arizona mortgages were at some stage of the foreclosure process.
The Center for Responsible Lending said its research is based on an analysis of more than 6 million subprime loans issued between 1998 and October 2006. The group used housing-appreciation forecasts from Moody's Economy.com to calculate foreclosure risk.
The National Association of Realtors, which joined in releasing the report, expressed discomfort with foreclosure rates.
The Realtors group fully shares "the concerns about increasing rates of default and foreclosures that are occurring in many areas around country," said President Pat Vredevoogd.
"It appears to be especially bad in the cases of nontraditional and subprime mortgages."
This chart shows the projected percentage of subprime loans originated in two periods, 1998-2001 and 2006, that will result in foreclosure, along with the ranking of Arizona's metropolitan areas among 378 nationwide. The higher the rank, the higher the projected foreclosure rate.
City 1998-2001 2006 2006 rank
Tucson 9.3 21.6 19
Phoenix-Mesa- Scottsdale 9.9 21.1 26
Flagstaff 6.9 12 368
Prescott 8.7 19.6 51
Yuma 9.3 16.7 250
Source: Center for Responsible Lending