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Report: 20% of Subprime Mortgages To Foreclose

Wednesday, 20 Dec 2006 | 2:27 PM ET

As we’ve been telling you over the past weeks, trouble is brewing in the far corners of the U.S. mortgage market. Today a new study from The Center For Responsible Lendingreveals that as much as 20% of subprime loans could go under. Not everyone agrees with those results and on today's "Street Signs" CNBC’s Erin Burnett found out why.

Quick fyi: a subprime loan is offered at a rate above prime to individuals who do not qualify for prime rate loans.

Here are the key findings:

- 2.2 million subprime home loads made in recent years have already failed or will end in foreclosure

- The foreclosures will cost homeowners as much as $164 billion.

- 1 out of 5 subprime mortgages originated during the past two years will end in foreclosure.

Subprime Foreclosure Threat
Two million Americans who took out subprime loans from 1998 to 2006 could lose their homes. Michael Youngblood, FBR Managing Director of Asset-Backed Securities Research; Ellen Schloemer, Ctr. for Responsible Lending Director of Research; and CNBC's Erin Burnett discuss the subprime foreclosure threat.

Ellen Schloemer, of The Center for Responsible Lending is the study's author. She said "We looked at the performance of 6 million subprime loans over the last several years and found that a significant number of subprime borrowers got into trouble after they got their loans - and we predict that's going to be 1 in 5 borrowers."

When asked about the data Schloemer explained, "We haven't yet seen the 1 in 5 foreclosures - but that's because people have been able to bail out of troubled loans because home prices have gone up. We think house values will stagnate or go down and more borrowers will go into foreclosure."

But Michael Youngblood, The Managing Director of Asset-Backed Securities Research at Friedman, Billings and Ramsey opposed the results of this study - vehemently.

He argued, "This value is understood by people who participate in the mortgagee markets. We fully expect this level of default. This is an expectation that's built in!"

Youngblood also feels the data used in the study was not current. CNBC will keep a close eye on all future developments.

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  • Brian Sullivan is co-anchor of CNBC's "Street Signs."

  • Co-anchor of CNBC's "Street Signs," Amanda Drury is based at the network's global headquarters in Englewood Cliffs, N.J.