Running late on loan payments

Subprime loans are mortgages to ‘risky’ buyers that have poor credit histories. Because of the extra risk involved in these loans, lenders charge a premium for them making them one of the most profitable types of loans. Some of these mortgages go for rates that are up to 4% higher than standard mortgages.

In the US late payments on these types of loans have surged recently:

Subprime mortgage originations climbed to $625 billion in 2005 from $120 billion in 2001, the WSJ said, citing Inside Mortgage Finance, a trade publication.

Based on current performance, 2006 is on track to be one of the worst ever for subprime loans, according to UBS AG, it said. It cited the bank saying that roughly 80,000 subprime borrowers who took out mortgages packaged into securities this year are behind on their payments.

So between 2001 & 2005 the subprime mortgage increased by more than 500%? A $625 billion market’s got to be hard to resist, but I wonder what effect this news will have on lending standards?

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I think most buyers purchase motivated by emotion not logic.Even emotion has to deal with the realities of affordability.


dingus, do you really think there are that many informed buyers out there? I think most buyers purchase motivated by emotion not logic.


…and what buyers there are, are deeply skeptical, having lurked around boards like this and VHB for some time, and will likely be fairly patient to find value.


Effect on lending standards? I'd say none. Unless people are walking away from their loans its just too profitable to worry about a few late payments.But I think that some people believe that since canada isn't filled with these types of mortgages that our market will be fine. I'd say thats probably true, except for the most over-valued markets (hello vancouver!) where the real problem is not lending standards, but that we've borrowed a bunch of demand from the future, and we're already scraping the bottom of the buyer barrel with zero percent down mortgages.