While some of the nation’s leading economists are optimistic for an improved housing outlook during the second half of 2007, Wall Street’s capital markets researchers — the money guys — are concerned hundreds of thousands of home loan borrowers could be in default before the summer months arrive. Chris Flanagan, managing director and head of global research for JP Morgan Securities, said approximately 35 percent of all subprime mortgage borrowers could have a difficult time meeting their loan obligations when their adjustable-rate mortgages hit their first adjustment period.

The amount of money at stake could be $200 billion, with as many as 500,000 to 1 million consumers in potential jeopardy. Many of the loans were “stated income” or low-documentation loans, which involved a relatively low-interest-rate first mortgage and a simultaneous, or “silent second,” mortgage, which together equaled the entire value of the property. In the mortgage business, this is known as a 100 percent loan-to-value-ratio loan. Frank Nothaft, chief economist for mortgage giant Freddie Mac, said while subprime borrowers typically have a default rate eight to 10 times greater than conforming borrowers, he was more suspicious of the huge share of speculators/investors than owner-occupants. “For an owner-occupant to go into default, you usually have to have a trigger event like unemployment or serious illness in the family,” Nothaft said.

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