San Joaquin County borrowers who took out a subprime loan in the first nine months of 2006 have an almost 1 in 4 chance of losing their homes to foreclosure, according to a study released Tuesday.

East Bay subprime borrowers have a 21 percent likelihood of losing homes to foreclosure over the life of the loan, said the study from the Center for Responsible Lending.

In the San Francisco metro area, which includes San Mateo County, the likelihood is 17 percent, the report said.

The center projected similar foreclosure rates for subprime borrowers in California and nationwide.

"It's become clear that the subprime market has basically created a recipe for foreclosures," said center President Michael Calhoun.

Subprime loans have higher interest rates than prime loans, which lenders contend are needed because subprime borrowers tend to have lower credit scores and income than prime-rate borrowers.

The increased use of adjustable-rate, subprime loans — which typically start out with a fixed introductory rate before payments jump up a couple of years later — is behind the rising foreclosure projections, Calhoun said.

Slowing appreciation is also a factor since it makes it harder to sell a home, the report said.

Subprime loans are becoming increasingly popular. Out of the nearly 1.8 million loans taken out in 2005 in California, more than 400,000 were subprime loans, and 21.


4 percent of those are projected to end up in foreclosure, according to the center.

The center did not provide a comparable outlook for prime loans. But DataQuick Information Systems noted that 19 percent of all California homeowners who missed several mortgage payments earlier this year ended up losing their homes in the third quarter to foreclosure, compared with 6 percent a year earlier.

"Because the (study) deservesfrom Business 1

careful consideration, not a facile response, we're going to decline comment until we've had the opportunity to examine and evaluate it thoroughly," said Tim McGarry, a spokesman for Washington Mutual, which provides subprime loans through Long Beach Mortgage. "On foreclosures generally, I will note that this is an outcome in which borrowers, lenders and investors all lose. That's why we view it as a method of last resort and work hard to avoid it."

The center wants federal guidelines that apply to prime lenders extended to subprime lenders. The guidelines require banks to consider whether borrowers who take out hybrid adjustable-rate loans can continue to afford the payments after the introductory period is over.

Nationally, borrowers who took out subprime loans to buy or refinance a home over the last two years have a 1 in 5 chance of losing their homes, compared with a 1-in-10 rate for subprime loans taken out in 2002, the report said.

Among 378 metropolitan areas, San Joaquin County had the seventh-highest projected foreclosure rate for subprime borrowers who took out loans in 2006.

Merced County was No. 1 nationally.

"California dominates the list of (metropolitan areas) that will have the greatest increase in foreclosures," Calhoun said.