Subprime U.S. mortgage default rate up

KANSAS CITY, Mo., Feb. 22 (UPI) -- Rising loan default rates among borrowers with spotty credit are hurting the U.S. subprime mortgage business, a published report said.

Defaults and related financial troubles affecting mortgage companies could hurt a broad segment of the U.S. housing market, The New York Times said Thursday.

Particularly hard hit will be largely poor and minority home buyers, who will see interest rates on adjustable-rate mortgages rise, as well as investors in mortgage-backed securities who poured billions into these loans, the report said.

Subprime lenders are particularly susceptible to the current housing-market downturn because they often deal with borrowers who stretch financially to buy homes. More than half of these borrowers, for instance, take out adjustable mortgages, whose interest rates are often lower than those of fixed-rate mortgages. But adjustable rates change, based on market conditions.

In addition, many subprime lenders are not obligated to follow the tougher regulations that apply to commercial banks.

The delinquency rate for loans made by subprime lender NovaStar Financial of Kansas City, Mo., jumped to 7 percent in 2006 from 2 percent in 2005, the company said.