Nonprime Loans Drive Long Island Foreclosed Home Listings

Posted on July 30th, 2009 in Foreclosure

More Long Island homes bought with nonprime loans are entering foreclosed home listings faster than in other parts of New York, based on a study carried out by the Government Accountability Office.

The study found that subprime loans, option adjustable-rate mortgage loans and alternative documentation loans originated by banks from 2000 to 2007 on Long Island and which are still on bank books totaled 69,654 as of March. Out of these loans, 28.1 percent or 19,572 loans are already in default by at least 90 days or are already on their way to foreclosed home listings.

According to GAO, the average default rate for the 5.2 million nonprime home loans across the country was 23 percent as of March.

Long Island?s Second Congressional District, which includes Suffolk and Islip, had the third highest delinquency rate in the state, with 33 percent. The Fourth Congressional District, which includes southwest Nassau and Hempstead, had the fifth highest delinquency rate, with 30.5 percent.

Representative Carolyn McCarthy of the Fourth Congressional District said that the entry of many homes into repossessed home is one of the most distressing results of the economic crisis.

Housing analysts said that Long Island had higher delinquency rates and distressed foreclosure home growth rates than many other places in New York because of financial industry layoffs, expensive housing and job losses in other sectors.

Based on the GAO report, the housing boom enticed many people to take out subprime loans, which were made for borrowers with poor credit records, and Alt-A loans, which were given to people who could not produce enough financial documentation because they were self-employed.

The GAO also found that 92 percent of all nonprime loans on Long Island which have become delinquent were taken out during the four-year period from 2004 to 2007.

The worst types of home loans that were made during those 4 years were the hybrid adjustable-rate loans. These loans assigned very low rates for the first couple of years and then reset to their higher fixed rates after the teaser period lapsed. GAO said these loans were prevalent in the subprime market, putting 38 percent of borrowers into delinquency as of March, ten percentage points above the delinquency rate for all subprime loans.

Option ARMs caused a delinquency rate of 30 percent, 13 percentage points above the rate for all Alt-A loans.
In the coming months, these delinquencies caused by nonprime loans will put more houses into foreclosed home listings on Long Island.

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