WLBT 3 - Jackson, MS: Mississippi Feels The Pinch of Subprime Loans

Mississippi Feels The Pinch of Subprime Loans

John Allison, Mississippi's Commissioner of Banking and Consumer Finance, says a glimpse of the newspaper's public notice section reveals that foreclosures in Mississippi have increased over the past 3 to 6 months.

It seems like there are more foreclosures every day. He's sure it's due to the subprime loans that were awarded to risky borrowers a year to 18 months ago. Those loans likely started out with a low teaser rate. "When they came in, probably the teaser rate was all they could pay for. Some of those folks were on fixed income.  You shouldn't be on fixed income to have an adjustable rate," he says.

Now those loans have adjusted to the current market conditions, which the borrowers can't afford. Last year, Mississippi had the second-largest foreclosure rate increase in the country. Delinquent loans here are higher than the national average too.

Big lenders are going out of business nationwide, causing a dip in the stock market.  Many of those companies specialize in subprime loans, and many of them are used by mortgage brokers in Mississippi. "That pipeline, if you will, is now cut off, and they'll have to go to somewhere else. All of the subprime lenders are feeling a pinch in what's going on in the market right now," Allison says.

Hurricane Katrina exacerbated the delinquent loan problem in Mississippi. But the subprime loans are making it worse. Even so, Quentin Whitwell, Executive Director of the state's Mortgage Banking Association, says subprime loans should not be wiped out altogether. "If you try to cookie-cutter every kind of loan, everything at a fixed rate, everything at a 30-year mortgage or a 15-year mortgage, there are a lot of people with their credit scoring, job history, unemployment history that can't meet those standards. They have to be banked too," he says.

Whitwell says homeownership is simply not for everyone, and consumers need to take a hard look at their own finances to determine what's best for them long-term.

To avoid foreclosure on your home, experts suggest you create a realistic budget for your income, and build some padding in so you don't have to miss any mortgage payments.  If you feel you're in over your head, don't wait to communicate with your lender about the problem.  Your lender may be able to offer alternative payment methods that will allow you to keep your home.