Inside the Oregon Subprime Loan Market, Crisis

The Statesman Journal in Oregon recently asked for readers’ opinions on the ongoing bad credit home loan problem in the state.

But first, it broke down this troublesome subprime lending market…

What is a subprime loan?
Lenders offer the home loans to people with subprime, or weak, credit by charging higher fees and interest rates. The loans often start with a “teaser” interest rate that resets to higher rates and monthly payments after two or three years.

The loans have boosted home ownership rates but caused a rash of foreclosures and bankruptcies.

Subprime loans not as widely used in Oregon
In the Salem, Oregon housing market, 624 residents took out subprime loans in 2005 to refinance their homes. That ranked Salem near the bottom in the nation in using such loans, 272nd highest out of 317 U.S. metro areas.

Statewide, 6,344 people took out subprime refinancing loans in 2005, the second-lowest usage among the states.

Home loans lead to problems
Oregon homeowners had 68,438 subprime mortgage loans as of March 31; 37,111 of them came with adjustable-interest rates, which typically rise after the first two or three years.

Nationally, 10.1 percent of borrowers with subprime, adjustable-rate loans were in foreclosure or more than three months behind in payments. In Oregon, the rate was 4.2 percent, third-lowest among the states.

Reduced-payment options
Oregon has the ninth-highest use of interest-only mortgages among the states, and seventh-highest use of negative-amortization or payment-option mortgages, in which borrowers can choose to make monthly payments that make their loan larger rather than smaller.