Loan Performance Takes a Big Hit by Negative Home Equity

 

Borrowers who had obtained nonprime mortgages earlier in the decade increasingly fell behind on their mortgage payments, helping to push default and foreclosure rates to historical highs.

The number of nonprime mortgage originations (including subprime and Alt-A loans) grew rapidly from 2000 through 2006, a period during which average house prices appreciated dramatically.

In dollar terms, the nonprime share of mortgage originations rose from about 12 percent ($125 billion) in 2000 to approximately 34 percent ($1 trillion) in 2006. These mortgages have been associated with what was subsequently recognized as a speculative housing bubble. As house prices subsequently fell, the subprime and Alt-A market segments contracted sharply, and few nonprime originations were made after mid-2007.

Economic conditions and a weak housing market have contributed to the increase in troubled loans. In particular, falling house prices have left many borrowers in a negative equity position?EUR??,,????'?????<