You read it everywhere, its in the news every night. \"The Subprime Crisis!\" Subprime lenders are closing their doors, prime lenders are laying off people who work the mortgages, and mortgage brokers are closing up shop. If you believe the media, it sounds like millions of people are turning in the keys to their homes.



It has been stated that 1/4 to 1/3 of U.S. households have a subprime mortgage. The latest MBA survey states that the delinquency rate for mortgages on one to four unit properties was 5.12% in the second quarter, up from 4.84% in the first quarter and 4.39% a year ago. Only a percentage of delinquencies ever enter the foreclosure process - many delinquencies will always exist without ever entering into the foreclosure process because they are late pays - often the very reason someone would need a subprime loan.





The foreclosure filings data from Realtytrac, shows that 179,599 homes were in foreclosure in July (default notices, auction notices and bank repossessions). California reported 39,013 foreclosures, the most foreclosure filings of any state. California holds 17% of all subprime ARMs and more than 19% of the foreclosure starts on subprime ARMs. California, Florida, Nevada and Arizona hold more than 1/3 of the country’s subprime ARMs and more than 1/3 of the foreclosure starts on subprime ARMs. Home prices have dropped in all four states, and most of the metropolitan areas in these four states saw home price declines during the second quarter, according to the Office of Federal Housing Enterprise Oversight. If it were not for the increases in foreclosure starts in these four states, we would have seen a nationwide drop in the rate of foreclosure filings.



These four states have disproportionate high share of investor loans by buyers who do not plan to live in the home, and declining home prices make refinancing these ARMs difficult if not impossible. The non-owner occupied share of defaulted loans in foreclosure was 32 percent in Nevada, 25 percent in Florida, 26 percent in Arizona and 21 percent in California, compared with 13 percent in the rest of the nation.



Investors who speculated the increase in home prices would continue are now left holding a home that does not appraise for even close to what is owed on the home. Similar to a game of ’Hot Potato’, some people have been caught in a very frustrating and damaging situation due to taking too much risk at a bad time.



Based on the numbers, the question becomes Is the subprime and foreclosure crisis a national problem or is it more a reflection of four local housing markets with numbers so high that they drive the national numbers?