So says Karl Case, an economics professor at Wellesley, as quoted in an illuminating article on subprime loans the Wall Street Journal ran ten days ago. As I discovered earlier this year, subprime loans were not the exclusive province of the poor. Last year the number of those who earned $300,000 annually who applied for a subprime loan increased by 74%.
The Journal went beyond talking about the rich and subprimes. 29% of the new mortgages last year were for subprimes; as recently as 2004 that number was 16%. And second mortgages to cover down payments made up 22% of last year's mortgages, as contrasted with 12% in 2004.
While subprime loans were made in just about every state, California and Florida easily topped the list. Sellers in both states have started walking away and letting their properties go into bankruptcy.
The end has not yet arrived as the adjustable rate mortgages made in 2005 and 2006 have begun to see rate increases that will ruin many more real estate 'investors'.
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