Subprime industry problems long in making
| While the subprime lending industry’s woes have kicked up dust in the past few weeks, observers say the problems underlying the bad news have been percolating for much longer. In December, the Washington, D.C.-based Mortgage Bankers Association said 12.6 percent of subprime mortgages were 30 or more days delinquent in the quarter ending in September, compared with 4.7 percent of all mortgages. That was an increase from a 10.8 percent delinquency rate for the third quarter of 2005. |  |
A resurgence in the housing market and lower interest rates would certainly help as well, but that assumes the industry can recover quickly enough to keep banks interested in underwriting people with questionable credit. “If the investment banks and larger institutional lenders are afraid to lend … the money to underwrite subprime loans on a short term basis, that’s the concern we have with these companies,” said Morningstar analyst Ryan Lentell. “If they can’t finance new loans, that would have a detrimental effect. That’s what has led a lot of these companies to leave the business.” Some lenders are trying to show they still have control over the situation, saying they’re tightening credit requirements or are selling off the worst of their loans. They say the loans sold in 2006 should be the bottom of the barrel and the ones sold in 2007 will be much more reliable.
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