Subprime lenders go belly up, taking homeowners with them

Congress blames Wall Street. Wall Street blames banks. But no matter who is to blame, hundreds of Hudson Valley homeowners are missing home payments and facing foreclosure now that subprime lenders have gone out of business.

Two weeks ago, New Century Lending joined Ameriquest, Ownit and dozens of others in declaring bankruptcy, leaving homeowners who had poor credit to begin with in dire straits and thousands of subprime employees out of work.

In August 2005, at the height of the market frenzy, subprime lenders were busy putting people who had less than perfect credit into homes and condos. The result was an explosion in housing prices, with sellers fielding bidders. But circumstances have changed for both lenders and sellers, creating a buyers”™ market with a glut of homes to choose from.

The Center for Responsible Lending (CRL) cited a spike in home ownership in the United States at 69 percent in mid-2005, an all-time high, but says that number is dropping as borrowers realize they have paid too much and earn too little once their “creative mortgages” have lost their magic. CRL estimated more than 1 million sub-prime loans will default, causing a crisis nationwide.

Greg Eckert, vice president of Centennial Mortgage (www.cmloans.com) at its Kingston headquarters, said there are still loans out there, even though the subprime market has imploded. “The loans that had limited or no income check, less than perfect credit, 100 percent financing loans are gone and they probably should have from day one. Lenders got a little too relaxed with their guidelines. Common sense has returned to the forefront and assess the risks of each loan ”¦ it was a recipe for disaster.”

Guidelines that allowed people who really couldn”™t afford homes have dried up, Eckert said. “People who have those subprime loans with the premise that they”™d refinance an adjustable rate loan, many took the 2/28, taking the exit strategy that the house would appreciate and they”™d refinance down the road. It didn”™t happen.

“There was not a lot of speculative buying going on in the Hudson Valley as it was in California and Florida. We haven”™t seen the dramatic price drop ”” yet maybe we won”™t.Â Our economy is different from other areas of the country that will suffer from this,” Eckert said.

Subprime loans were 20 percent of the demand. Now that subprime loans have gone away, there”™s a glut of real estate on the market. “Most of the loans in this country are done through brokers ”¦ I can”™t quantify it, but the industry states over 60 percent of loans originate through brokers,” Eckert said.

Dave MacFarland, president of Riverside Bank (www.riversidebank.com), said commercial banks are not affected by the subprime pandemic, but it doesn”™t mean businesses are out of the woods. “We don”™t know how many people borrowed against the equity of their homes to open a business. We are just lucky the Federal Reserve has kept interest rates low. Truthfully, I am scared, really scared, for our economy.” MacFarland, who just returned from Florida, says the real estate market in the Sunshine State is a shambles. “We saw 25 out of 33 condos in one development with a ”˜for sale”™ sign up,” MacFarland said. “That hasn”™t happened here but it is frightening. I don”™t think we”™ve really seen the full effects yet ”¦ but getting a loan will be a lot tougher than it was in the past.”