| Plenty of blame in subprime loan fallout
But many subprime mortgages are variable. For instance, a popular type of subprime loan known as a "2/28" has a fixed rate for two years, but then adjusts. The adjustable interest rates are frequently tied to benchmark interest rates, such as that for a one-year U.S. Treasury bill or the LIBOR, the prevailing short-term interest rate in London. "A lot of them have a three percent rate cap on the very first adjustment, and they adjust every six months after," Cunningham said. "They're treacherous when you think about it." Suddenly, borrowers can find themselves facing interest rates that are much higher than when they signed for the mortgage -- rates that can easily end up in the double digits. While many subprime loans give borrowers the ability to pay less than their full payment, or offer caps on interest rates or payments borrowers must pay, Cunningham and Moriarty said that can lead to an even worse problem: negative amortization.
To Subprime Origination
General Motors Acceptance Corp. said Wednesday that it intends to "sharply" cut the volume of subprime mortgages originated by its Residential Capital LLC unit for 2007, amid continued pressure from housing prices and the nonprime mortgage market. GMAC, which used to be wholly owned by General Motors Corp., ... .
Troubling trend: Foreclosures continue to climb
In 1998, 196 notices of foreclosure were filed in Alamance County. In 2006, 737 notices were filed. Thats a 276-percent increase. In nine years. The trend is continuing in 2007. Foreclosure filings are up more than 20 percent through the end of March of this year compared with the same period last year, says county Register of Deeds David Barber. It is a national trend. The figures highlight a problem that will probably worsen before it improves, says Graham bankruptcy attorney David Huffman. Predatory lenders and credit card companies, and a changing job market are primarily behind rising bankruptcies and foreclosures, Huffman says. Mortgage lenders are issuing more sub-prime loans, or loans to people with only so-so to poor credit. Home loans and second mortgages often require little or no down payment or collateral.
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