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. (Read more housing market stories.)