United States of Sub-prime

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Good morning. A number of commenters pointed out yesterday’s excellent Wall Street Journal story exploring the sub-prime mortgage mess.

It’s a good story, worth a read, and adds a twist to conventional wisdom about sub-prime mortgages, which is this: conventional wisdom says the sub-prime crisis is mainly about low-income borrowers in low-cost areas. The Journal’s analysis indicates the problem is more widespread -- that even in affluent suburbs, some borrowers chose high-interest loans so that they could stretch their way into more expensive homes: ‘Among borrowers characterized in the data as white with annual income of at least $300,000, the number of high-rate loans jumped 74% last year, the numbers show.’

Example: Kristine McMahon, who has a six-figure income as a mortgage broker, chose a subprime loan when she did a cash-out refi on her $2.7 million house in East Hampton, N.Y. Why the expensive loan? It allowed her to turn more equity into cash. The lender? Now-bankrupt New Century Financial.

Other tidbits from the story: The Journal, quoting RealtyTrac, declares Stockton the nation’s foreclosure capital, and, quoting a homebuilder, declares Fort Myers, Fla., ‘likely the worst housing market in the country.’

Thoughts? Comments? Email story tips to lalandblog@yahoo.com
Photo Credit: LATimes