When adjustable-rate mortgages are increased this year, hundreds of thousands of subprime borrowers could lose their homes, triggering a precipitous drop in the housing market, CNNMoney reports. The threat is the latest in the emerging subprime loan crisis. Heartland industrial areas, as well as once-hot markets in California, Nevada and Florida, are expected to be hit hard.
In 2004 and 2005 lenders approved inexpensive "teaser" loans to people with spotty credit histories. Now, wide-scale delinquencies are expected as those borrowers face up to 35% more each month in housing payments. In the past, rising home prices meant borrowers in trouble could refinance to pay their debt. But housing values have already begun to slip.