Subprime lending, also called B-paper, near-prime, or second chance lending, is the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history.

There are many different kinds of subprime mortgages, including:

• interest-only mortgages, which allow borrowers to pay only interest for a period of time (typically 5-10 years);
• “pick a payment” loans, for which borrowers choose their monthly payment (full payment, interest only, or a minimum payment which may be lower than the payment required to reduce the balance of the loan);
• and initial fixed rate mortgages that quickly convert to variable rates.

With the news of adjustable-rate mortgages due to reset and the continued threat of declining property values, the hot word on the street seems to be foreclosure.

But before you give in to foreclosure, consider the tax implications that if left unchanged, may shock you come April.

If you happen to foreclosure on your home and the bank or lender is forced to sell your old property for less than the existing mortgage lien(s), the difference will be considered “debt forgiveness”.

The bad news is that this difference will be considered taxable income, despite the perceived hardship and physical loss associated with foreclosure proceedings.

For years, hot-shot speculators made huge profits flipping condos in Florida and Vegas before they were even constructed. All the while, the naysayers in the ivory towers of Wall Street and academia warned of a “housing bubble” that was sure to burst as all bubbles do.

When Fed chairman, Alan Greenspan, said that the national real estate market was “frothy,” the writing was really on the wall, and anyone with half a brain could see that we were in for a “cooling” of the housing market, at best. Yet still, speculators continued to profit, and the real estate bull market marched on…

A key measure of mortgage application volume rose last week as growth in interest rates slowed, the Mortgage Bankers Association reported today.

The MBA’s market composite index edged up 0.7 percent on a seasonally adjusted basis from the first week of October, and includes an adjustment to account for the Columbus Day holiday.

The index component that tracks purchase loans gained 2.1 percent between the first and second weeks of the month, while the refinance index actually declined 1.1 percent during the period, according to MBA.