Rising foreclosures seen for sub-prime mortgages

About 1 in 5 sub-prime mortgages made in the last two years will end in a foreclosure, exceeding the failure rate for all home loans in oil patch states in the 1980s, a study released Tuesday by a consumer group predicted.

The rate, nearly double the group’s predicted foreclosures on sub-prime loans made in 2002, reflects slowing home price appreciation and riskier lending since 2004, according to the Center for Responsible Lending, a Durham, N.C.-based nonprofit group.

Sub-prime mortgages are loans to borrowers with poor or limited credit histories, or especially high debt burdens.

Michael Fratantoni, a senior economist at the Mortgage Bankers Assn., said the home price forecasts the group used were “unduly pessimistic.”

What’s more, only about 25% of foreclosures lead to borrowers losing their homes to lenders, while the rest are refinanced, modified or cured through other scenarios, Fratantoni said.