September 08, 2007
Fed release guidelines for sub-prime mortgages
OK, not exactly exciting for those of you outside the finance industry, but the Federal Reserve has released guidelines for sub-prime loan originations. Some of the new regs are interesting given the current issue in the lending industry with the rampant problems in underwriting standards and the resulting defaults. What really stands out to me are the changes to income evaluation. While these may seem like common sense changes, you had to be in the industry to see how far away from common sense some lenders went.
All this aside, this week we got the MBA's numbers on defaults and slowpays... Here's the skinny
Foreclosures - Mortgages where foreclosure process has been started to perfect title and take formal ownership
PRIME MORTGAGES - .27%
SUBPRIME - 2.72%
Slow pays - Mortgages 90 days or more late, but no foreclosure proceedings started
PRIME - .93%
SUBPRIME - 9.80%
See a trend? YES, subprime loans tend to have, on a historical basis, about 10 times the slow pays and foreclosure rates of prime mortgages. The other thing you should notice is that the sky is not falling.
The reality is that these loans are not going to perform like prime mortgages. Which is surprising only to the folks on Wall Street who priced those loans as if they would perform BETTER than prime loans.
Posted by mcblogger at September 8, 2007 12:15 PM
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