Sub-Prime Lending

Sub-Prime lending is a term which means lending to individuals who are generally lower income or who have bad credit. According the the Christian Science Monitor (http://www.csmonitor.com/2006/0324/p02s01-usec.html), this market accounts for approximately 19% of all originated home loans. This group, which has seen non-performing loans decline for nearly 7 straight years is starting to see an increase. Foreclosures are up 68%. Loans which are 30 days late have increased from 5.4 to 7.1%. This is not a good sign for the housing market.

This is probably being caused by two things: first, interest rates are starting to rise, putting pressure on some of these loans, and peoples' abilities to refinance them; and second, housing prices are getting too expensive. People are qualifying for larger loans that they can not afford.

The typical calls for regulation, federal laws, etc. are coming from community housing activists, but this will only lead to fewer low-income residents getting home loans in the first place. Do some people get taken advantage of? Of course, this happens in all kinds of situations. However, inserting regulations will only serve to reduce supply, thereby making these loans much harder to come by, and preventing other people who would qualify for these loans and don't have financial difficulty managing them, from being able to purchase a home. Philisophically, I am against adding regulation, but it is not something that would likely hurt me personally; only the millions who will no longer be able to purchase a home because lenders can't afford to lend to them.