Monday, July 18, 2005

Growth of Subprime Loans

The growth of subprime loans has been huge. What is a sub prime loans? Simply put "A loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. (Investopedia.Com)"

No documention (aka 'liar loans') and low documentation loans are also increasing as a percentage of all loans. This from :

The share of “jumbo” mortgages (mortgages for more than $359,650) issued without full documentation increased from 27% in 2001 to 51% in 2004.
One of the major causes for the housing bubble is the ongoing credit bubble. If, and when the credit bubble pops the housing bubble will surely pop shortly thereafter. ( Even if the credit bubble does not pop, the housing bubble will still eventually pop ) The creative irresponsible lenders, are almost out of 'pony tricks' to keep this credit bubble growing. Since the lender are almost out of 'pony tricks', the housing bubble is on its last legs.


  1. I agree that it is the lack of Credit standards that are ramping this Buuble to its eventual fuition. Our parent's generation had to scrape 20% down to get into the house with that old fashion 15/30 year fixed dinosaur. I believe that the mortage industry has been irresponsible in telling people to get ARM's and all its dengenerate offsprings..When the short term rates can only go up what will happen to the payments?.. I hope a whole bunch of new home buyers get 20-30 % raises in the next few years or it will be a bloodbath in the most expensive regions.


  2. Not only has the "mortage industry irresponsible in telling people to get ARM's", Greenspan himself encouraged people to get ARM's. Greenspan needs to resign or be fired.

  3. Over-simplification is the root of all misunderstanding and confusion in the mortgage industry. Mortgage brokers who irresponsibly promote ARM's and over-zealous critics who oppose them are all guilty of simplifying complex issues to the point of absurdity. The truth is, ARM's have their place in the market and are excellent, money-saving options when used wisely. That being said, many people should not have ARM's. But Alan Greenspan did not encourage ALL people to get ARM's. What he said is that, in may cases, people are over-paying for their 30 year fixed mortgages because the vast majority of mortgage loans pay off for one reason or another in 5 to 7 years. Just take an informal survey of your friends and family and ask them what's the longest time they've ever lived in a home and/or kept a mortgage.

    And finally, do all the doomsdayers really think that 2, 3 or 5 years from now when and if rates are considerably higher that no one will be buying and selling homes? We've been spoiled the last several years with ridiculously low interest rates. The mortgage industry deserves a lot of credit for innovating and creating products that have made the dream of homeownership possible for millions of people that would never be able to scrape up 20% for a down payment. After all, if a homebuyer puts no money down to buy a home, who's really taking the risk? The lender of course.