Impact of Subprime Mortgage Crisis in Nassau County
Nassau News Staff Writer
As the subprime mortgage crisis escalates nationwide, mortgage defaults in Nassau County increase as well, leading to scores of foreclosures in recent months.
At the onset of this project, there were only 114 homes listed on the foreclosure reports. That number has increased to over 300, nearly a month later.
Reports show that Suffolk and Nassau counties accounted for 33 percent of subprime loans that were made in 2006 in New York. At the same time, Long Island has 30 percent of all subprime loans scheduled to be reset before October 2009. These are alarming statistics with an already declining economy.
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The subprime mortgage crisis can be traced back to the real-estate boom of the late 1990s. A decade-long housing boom fueled by low interest rates and excess liquidity finally caught up to homeowners who were pushed into loans outside of their means. Mortgage loans that conventional lenders such as Chase Manhattan Bank N.A., and Citibank N.A. would have otherwise declined.
Aggressive mortgage brokers enticed by the lure of big commissions, talked buyers with poor credits into accepting home loans with little or no down payment, mostly without proper documentation and credit checks, setting the stage for the current mortgage meltdown.
Understanding the Terms
Adjustable rate mortgages (ARMs), interest only (IOs), are known as subprime mortgages. They typically cost 2 or 3 points above conventional loans, and carry interest set at low 'teaser' rates for the first couple of years, followed by a reset to much higher rates. The reset frequently results in raising the borrower’s monthly payment by as much as 100 to 150 percent, making it almost impossible to handle monthly payments.
Suffolk and Nassau Counties, according to a latest report released by the Empire Justice Center, a non-profit law firm that advocates for low-income families, account for a third of the state’s 2006 subprime loans in foreclosure. Subprime mortgage lending jumped to almost 20 percent of all loans (by number) from 9 percent in 2003.
What's Happening on Long Island
Population growth, overcrowding, and the aforementioned real estate boom pushed many families to Nassau County, due to its proximity to New York City, to grab hold of the “American Dream”. The high demands increased home values and prices at the median level, which explained the high level of disparity in median home prices between Nassau County and Suffolk County.
New homeowners saw a rising value of their homes during the initial year of their mortgages. With the equity rise many homeowners no longer think of their home as just a place to live. Instead, it's a cash machine that can be used to satisfy other debts in the form of consolidation for high-rate credit cards, student loans, medical bills, home improvements, and frequently took out home equity loans for extra cash.
The decline in home values, a weak economy and the reset of those subprime mortgages result in foreclosures. Many borrowers want to sell their homes to pay off their mortgages, but they are unable to find offers that would cover their loan pay-off amounts. Low- to middle-income populations are affected the most,as thousands of families are being forced to walk away from homes being repossessed by banks.
The fallout from the subprime mortgages has affected the housing market, financial markets and the entire US economy. Experts are predicting that things will get worse before they get better. The International Monetary Fund or IMF said that the US subprime mortgage crisis could hit $945 billion worldwide.
Related Links
- To see actual impact of subprime mortgage foreclosures in Nassau County click here.
- The foreclosure report site for Nassau County, Freeport, is updated daily and provides home value, location, as well as interesting facts about the town of Freeport.
- The foreclosure report site for Nassau County, town of Hempstead, is updated daily and provides home value, location, as well as interesting facts about the town of Hempstead click here.
- To see short articles from a Nassau County real estate website on the decline of home sales (April 9, 2008), click here.
- To read an article dated March 27, 2008 from CNNmoney.com on the federal government's effort to help those facing foreclosures, click here
- To read an article on mortgage resets click here
- To read a CNN article on Bank of America's efforts to bail out Countrywide, dated March 29, 2007, click here
- The International Monetary Fund, or IMF, estimated that the US mortgage crisis may cost $945 billion worldwide.
To read IMF report, click here
- To read an article on mortgage reset, click here
To listen to an interview with Jason Levy, an independent broker, click on the embedded player below: Click here for a transcript of the interview.
To view an interview with Ivan Brathwaite, a mortgage analyst, click on the embedded player below. Click here for a transcript of the interview.
To read the production memo for this article, click here
