Many of you have recently asked me about how the current subprime mortgage industry fallout is affecting us both as buyers and sellers of home.  While there are many opinions out there, especially regarding a broad market overview of the entire country, I'd like to answer this question here on my blog at a very local level.

THE FACTS regarding the Subprime Fallout is that there is currently over a 14% rate of default on subprime loans.  Major subprime lenders businesses are unsustainable with such a highly level of default, and therefore companies in this sector have been hit very hard, including the highly publicized New Century Mortgage which filed for Bankruptcy in this last month.

As of April 16th, this article was written:

"SAN FRANCISCO (Reuters) -- The number of mortgage default notices sent to California homeowners last quarter rose to its highest in nearly 10 years as home prices stagnated and rates on adjustable loans pushed higher, a report released Monday said.

Mortgage lenders filed 46,760 notices of default from January through March, marking an increase of 23.1 percent from the previous quarter and 148 percent from the year-earlier period, according to a report by DataQuick Information Systems, a real estate information service."

How about the Bay Area?

On a very practical level, I have not seen the effects of these subprime defaults negatively hit home prices here in the immediate bay area.  First of all, I think that the majority of subprime borrowers usually are of the 1st time homebuyer categories that are purchasing at the lower price brackets for the Bay Area of up to $600K.  There are already reasonably strict underwriting guidelines that makes it hard for borrowers to borrow more than that amount.  Given that price bracket, this will have some slight effects mainly on condos, and townhome sales as a category, but however in the Bay Area, I do not see any major signs in the market to cause concern.  The market is still very strong, and there is not enough critical mass of defaults in the Bay Area to really effect the housing prices.

For California, the riskiest loans are inland.  According to DataQuick, mortgages were least likely to go into default in Marin, San Francisco and San Mateo counties, three affluent coastal markets with a tight supply of housing that has helped prevent home prices from slipping.

Also for a good overall analysis, I would recommend this article by the National Association of Realtors.  It does a good job of putting real numbers together rather than just suggestive scare words that you often seen with the news.  Here's the link: http://www.realtor.org/reinsights.nsf/pages/forecast