'High Leverage' Loans Look Vulnerable in a Slowdown.(Brief Article)

With the economy continuing to soften, the mortgage industry may soon find out just what its highly leveraged mortgages are made of.

Steven Hornburg, executive director of the Research Institute for Housing America, said, "We have had a decade of strong economic performance and with the increase in low-income homeowner rates, there is uneasiness as to what could happen in the event of a economic downturn because a lot of these new affordable mortgage products haven't really been stress-tested by an economic downturn."

A recently released report by the institute said that "national homeownership rates reached an all-time high of 67% at the end of the third quarter of 1999."

If a recession should occur, "the economic-fringe employees (referring to low-income borrowers) are going to suffer more than others. They may lose that second or third job that they have that carries the cost of their home," said Mr. Hornburg.

The institute's study also cited a 2000 report by the United States Department of Housing and Urban Development, saying that "in 1997, 8% of homeowners had housing-cost burdens higher than 50% of (pretax) income."

The study said these percentages were "severe and thought to be unsustainable in the long run."

It also found that "low- and moderate-income households purchase a disproportionately larger share of older housing than wealthier households."