High-priced subprime loans – The Center for Responsible Lending reports that over 1.5 million homes have been lost to foreclosure due to subprime loans and another 2 million subprime loans are more than 60 days’ delinquent and at risk of foreclosure (Center for Responsible Lending 2009). Subprime loans are generally issued to borrowers who have lower incomes and/or damaged credit, and carry higher-than-average interest rates to compensate for that extra risk, but many subprime loans went to borrowers who should have qualified for better terms (Brooks and Simon 2007). In some cases, subprime mortgages may be unaffordable from the outset, leaving families vulnerable to foreclosure even if their incomes stay steady. In other cases, subprime borrowers who suffer a financial setback may have trouble keeping up with the higher payments. Click here to read an analysis of loan performance problems by subprime status.
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Adjustable Rate Mortgages and Other Non-Traditional Loans–Some types of mortgage terms, such as negative amortization, balloon payments, no-documentation, low-documentation, and adjustable interest rates [see note 1], have been linked with an increased risk of foreclosure (U.S. Department of Housing and Urban Development 2009). No-downpayment loans or other loans with a high loan-to-value (LTV) ratio can also pose risks in the event that home prices decline or the family experiences major repair bills that homeowners might otherwise pay for by tapping their equity.
 Adjustable rate mortgages offer borrowers very low "teaser" interest rates for an introductory period that may be as short as the first 2 or 3 years of the mortgage term. After the introductory period, interest rates reset to a much higher level – typically market-rate plus 2 or more points – causing sometimes significant increases in borrowers' payments.