Consumers’ Defaulted Subprime Home Loans Difficult to Restructure

Many thousands of California consumers have bought houses–or refinanced them–using “subprime” loans. Subprime loans are offered at higher than market rates to people with impaired credit. Often these loans are structured with little or no money down. Often the mortgage rate is adjustable, beginning with an attractively low interest rate that increases as the loan ages. Both the consumer and the lender essentially make a bet that house prices will continue to climb. If they win the bet, then the consumer builds equity in the house just because the house’s value increases, not because the consumer pays down the loan....

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