Subprime crisis toll tabbed at $71b

WASHINGTON - About 2 million subprime borrowers will lose their homes to foreclosure through 2009, costing them $71 billion in housing wealth, a congressional report said.

Subprime foreclosure rates will increase as housing prices stagnate or decline, and the effects of the subprime crisis may spill over to the broader economy, according to a report by the Joint Economic Committee released yesterday.

"State by state, the economic costs from the subprime debacle are shockingly high," Senator Charles Schumer, the New York Democrat who heads the committee, said at a news conference. "From New York to California, we are headed for billions in lost wealth, property values, and tax revenues."

The report spotlights the foreclosure threat facing borrowers with poor credit as interest rates on adjustable loans reset to higher levels. US home foreclosures doubled in September from a year earlier as subprime borrowers struggled to meet payments, according to RealtyTrac Inc. There were 223,538 foreclosure filings last month, the Irvine, Calif.-based research company said.

Subprime foreclosures will total about 2 million between 2007 and 2009 if housing prices drop 20 percent over those three years, the report projected. About 1.3 million of the nation's 7.4 million subprime borrowers will face foreclosure between the third quarter this year and the fourth quarter of 2009, the report said.

Subprime loans represented 14 percent of all outstanding US mortgages as of the second quarter of 2007, the report said.

The 2 million foreclosure projection Schumer cited is "very inflated," said Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association, a Washington-based industry group. He estimated there would be about 1.2 million foreclosures on subprime adjustable-rate mortgages between 2007 and 2009. Housing prices nationally are not likely to decline by 20 percent, as the report estimates, Brinkmann said. "If you start with an unreasonable assumption, you get an unreasonable conclusion," he said.

Schumer urged mortgage lenders to help borrowers avoid foreclosure by helping them change the terms of their loans. He also called for more funding to housing nonprofits to help troubled borrowers negotiate with their lenders to refinance or change the terms of their loans.