They took out adjustable-rate mortgages at the peak of the housing bubble to buy homes they would otherwise not be able to afford. Or they refinanced existing mortgages to take cash out. And now, two or three years later, the day of reckoning is here.
These are not lower- and middle-income borrowers, but more affluent consumers with annual incomes of $100,000 or more who are increasingly being ensnared in the home mortgage crisis.
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According to Loan Performance, a unit of First American CoreLogic, a real estate information company based in Santa Ana, Calif., about 870,000 borrowers took jumbo ARMs — mortgages of $417,000 or more — from 2005 to 2007.
As some of us have been trying to explain for a long time, "subprime" was a category of borrower, and ARMs and other types of "exotic" mortgages were loan types. While in some areas subprime borrowers were probably more vulnerable to predatory loan tactics, this has never been a "subprime" problem. If I had to describe simply if imperfectly what the problem was, I'd say it was a lax lending standards problem. Years ago I said these stupid loan terms were a bad idea, but I had no idea then that not only were stupid loans being given out but that they were being given out to people who had no hope of repaying them.