The Subprime Crisis and Philadelphia

Sub prime loans have increased dramatically in the past three years in Philadelphia according to data from the Home Mortgage Foreclosure Act.

20% of all mortgage loans (9,532) in 2004 were sub prime.  In 2005 the percentage of sub prime loans went up to 31% (16,937).  37% of all loans were sub prime in 2006 for nearly 20,000 sub prime loans.

Numerous Philadelphia neighborhoods had over 40% of mortgages that are considered sub prime using 2005 Home Mortgage Foreclosure Act data.

Neighborhoods with sub prime loans making up over 50% of all loans in 2005 included:
                        East Germantown
                        Hunting Park
                        Kingsessing
                        Logan/Ogontz/Fern Rock
                        Southwest Philadelphia
                        West Oak Lane
                        West Philadelphia/Parkside

Neighborhood with sub prime loans making up over 40% of all loans in 2005 included:
                        Allegheny West
                        Cederbrook/Stenton
                        Eastwick
                        Fairhill
                        Frankford
                        Olney
                        Overbrook
                        Point Breeze
                        Tioga/Nicetown
                        Cobbs Creek

Despite not facing the crash in housing prices that some cities have experienced, foreclosure filings in 2007 rose by 18% to 6,237, nearly as high as during the 2001 recession.

Many sub prime loans are Adjustable Rate Mortgages or ARMS which begin to reset at increased interest rates 24 to 36 months after they are originated.  Thus, thousands of loans are about to reset to higher payments in the next year or two in Philadelphia.
If homeowners cannot make the payments and lose their homes there will be high concentrations of foreclosures in numerous Philadelphia neighborhoods.  

With mortgages almost impossible to access for buyers with less than prime credit many of these properties could end up being vacant for long periods of time and would be vulnerable to being stripped and being made uninhabitable.

Efforts to modify sub prime loans to more affordable rates are moving slowly.  Recent data from the Mortgage Bankers Association showed that sub prime loans were 13 times more likely to be foreclosed than modified.

Lawrence Phelan, managing director of Philadelphia’s leading foreclosure law firm told the Philadelphia Inquirer on March 24 that he wasn’t surprised by the difficulty in getting loans modified.  He said "Under the current climate, the servicers are besieged.  This is a volume that no one anticipated."
Foreclosures and abandonment could reduce property values for homeowners living in neighborhoods and blocks that will be hit by foreclosures and abandoned dwellings.  Tax revenues could be impacted and affect city services and schools. 

Without action Philadelphia could face a foreclosure crisis which would affect thousands of families and many of our neighborhoods and that could take years to recover from.