Jamshid Damooei, PhD
Size of the Problem
The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket (November 2007).
The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish.
According to Chairman Bernanke delinquencies will probably rise further for borrowers who have a subprime mortgage with an adjustable interest rate on average from now until the end of 2008, nearly 450,000 subprime mortgages per quarter are scheduled to undergo their first interest rate reset.