Subprime in the City

From the NY Post:

SUB-PRIME LOAN BUBBLE IN CITY

A startling 50 percent of homeowners in five of the city’s poorest neighborhoods are holding sub-prime mortgage loans, it was reported yesterday.

NYU’s Furman Center for Real Estate and Urban Policy said the percentage of home-purchase loans in the sub-prime category here more than tripled from 6.5 percent in 2002 to 22.9 percent in 2005.

Sub-prime loans are typically given to borrowers who don’t qualify for lower, prime rates because they are considered poorer credit risks. The loans are often the only route to home ownership for those who can’t meet normal lending requirements.

The sub-prime industry nationwide is in crisis as some of the largest lenders have collapsed in bankruptcy and states and Congress are calling for a crackdown to protect homeowners.

The NYU study found that in 22 of the city’s 59 community board districts, more than 30 percent of all home-purchase loans were sub-prime. Manhattan accounted for just 1.1 percent of the loans.

By comparison, the Brownsville section of Brooklyn – where the median annual income was $22,238 – led the citywide list at 52.28 percent.

Also topping the potentially perilous 50 percent mark were Jamaica/Hollis in Queens, East New York in Brooklyn and Williamsbridge and Belmont in The Bronx.

“If [home-value] appreciation flattens out, you’re going to see a lot of homeowners going into distress,” warned Furman research fellow Solomon Greene.

When there’s a downturn in the housing market, overburdened borrowers could find themselves unable to pay the mortgages and unable to sell their homes for what they paid, which would lead to foreclosures.