Thursday, April 14, 2005

Subprime Loans "Pose Unknown Level Of Risk"

Broderick Perkins, who writes at Realty Times, is a thoughtful fellow in this wild housing market. He tends to focus on the impact of the price boom as much as any RE columnist. This report covered a conference that discovered the lending spree is fueled by the mortgage industrys' desperate attempt to extend the boom.

"While there have been interest-only and negative amortization loans in the prime sector for years, the presence of these types of loans in the subprime realm is largely the market's response to increasing borrower affordability and to maintain origination volume." said S&P's Susan Barnes.

Readers of this blog have heard this before, "The loans themselves pose a greater risk because they cost more or defer costs or both. The subprime market has also spawned growth in predatory lending, purposely presenting lower income, minority, older and less-informed, borrowers with loans they can't afford."

"If a time arrives when there are too many risky loans and the economy hits a recession many home owners could default on the American Dream and take the economy down with it."

3 Comments:

At 10:30 AM, Blogger John Law said...

(If a time arrives when there are too many risky loans and the economy hits a recession many home owners could default on the American Dream and take the economy down with it." )

could? WILL! they'll take that consumer debt bubble with em.

 
At 10:38 AM, Blogger Ben Jones said...

John,
I agree about the "will". This bubble burst in the mortgage collapse after 2003. Everything that follows is "fulfilling the book."

 
At 1:31 PM, Blogger John Law said...

I read a ton on the history of booms and busts. this is just a typical boom and then bust scenario. something goes up and up. investors, banks and the economy is dependent on this something. suddenly, something isn't such a great investment and the bust follows. it's like I've already read this book.

 

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