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Subprime Is Dead. Long Live Subprime

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http://www.fool.com/investing/general/2009...hpsitcl10000001

Even though the default rate is significantly higher with subprime, the total amount of prime mortgages makes it one of -- if not the -- biggest areas of trouble. One year ago, there were around one-third more seriously delinquent subprime mortgages than prime mortgages. Today, that number has flipped, with seriously delinquent prime mortgages running roughly 38% higher than subprime.

Prime has, in a sense, become the new subprime.

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Just saw something on CNBC showing that the supply of houses over $750k is something like 4 years. That is a lot of inventory to work off.

The deliquency rate in this segment (jumbo prime) is now reaching 7.5% for loans over $750k that were fully documented. The unemployment effect is certainly feeding though.

Finally, there were downgrades of tranches of 2002 - 2004 prime RMBS pools. These were mortgages with documented income, reasonable LTVs (no more than 80%) and done before the peak of the bubble.

These problems are far from over and are spreading from the lunatic fringes (NINJA, sub-prime etc etc) to the mainstream.

Edited by LuckyOne

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These problems are far from over and are spreading from the lunatic finges (NINJA, sub-prime etc etc) to the mainstream.

Domino effect ...........

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The Negative Equity Threat to the UK Housing Market

Those with an interest in the future for UK house prices would do well to read yesterday’s Fitch Ratings' special report on negative equity among prime borrowers.

The report, Underwater - Exposure to Negative Equity in UK Prime Residential Mortgage-Backed Securities (RMBS), paints a very different picture to that currently being spun by estate agents and mortgage brokers, and suggests much more pain is on the way for the UK housing market.

Fitch focuses its attention on the leading 12 master RMBS trusts those securitised off-balance sheet vehicles which allowed the banks and building societies to increase their mortgage lending exponentially at the height of the housing boom.

These include Granite, the controversial offshore trust used by Northern Rock to sell its range of high loan to value mortgages, and Aire Valley, owned by Bradford & Bingley. Overall these 12 trusts represent around 2.7 million loans worth some £263 billion.

Crucially, Fitch focuses its attention on the prime™ borrowers within these trusts, rather than the subprime borrowers that have previously attracted most critical attention.

Fitchs surprising and rather disturbing finding is that around 10% of prime borrowers representing around 15% of loans by value are now in negative equity. This in turn will rise to 23% of prime borrowers - or 32% of loans by value if house prices fall by 30% peak-to-trough, as Fitch expects.

A 40% fall in house prices, meanwhile, would see 52% of loans by value enter negative equity.....................

..........What is more, there is a significant swathe of people who are not yet technically in negative equity, but whose current loan to value is so high that they would be unable to refinance at the same rate. Many of these have so far been saved from disaster by low interest rates, but their fundamental problem remains unresolved.

As the FT points out this morning, all these people stuck in their homes are creating a ‘glut of hidden property’, which in turn is likely to depress house prices further. Even a short term rise in prices, Fitch argues, is likely to make things worse in the longer term, by encouraging trapped sellers to put their homes in the market, which in turn will push prices down again. It sounds like a vicious circle with no way out, for the immediate future at least.

.

Edited by Sybil13

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Prime mortgages are going to be even bigger loss makers for the banks than subprime.

Subprime where sh1tty little loans, the loss from a prime loan may equal the losses from 5 or 6 subprime loans.

Brown trouser time.

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"Prime" --- / "Sub-prime"...... just labels.

Anything over 3 x non-liar income pa is sub-prime.

It's that simple.

The rest is bullsh1t.

Spot on.

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Domino effect ...........

...... which means we are nearly at the bottom where all those green shoots await.

I think we should send one of the juniors over to mse to tell Hamish

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Anything over 3 x non-liar income pa is sub-prime.

What absolute codswallop to come out with such a generalisation.

Anything is sub-prime if you earn 10k pa

Anything over 1x non-liar income pa is sub-prime if you earn 15k pa.

Anything over 3x is sub-prime if you earn 30k.

Anything over 6x is sub-prime f you earn 75k.

There is no one-size-fits-all answer.

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Domino effect ...........
...... which means we are nearly at the bottom where all those green shoots await.

Oh yes.

The snow flake is on its way to becoming an avalanche. We are probably only at the large snowball phase now.

All of those poor little green shoots struggling to burst out of the ground at the bottom of the mountain are about to be buried.

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"Prime" --- / "Sub-prime"...... just labels.

Anything over 3 x non-liar income pa is sub-prime.

It's that simple.

The rest is bullsh1t.

Your bullsh1t is just another label too.

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Its the ability to service the debt that will define the primes from the sub-primes. Giving loans to those that never had a cat in hells chance of repaying was the trigger , now as unemployment increases so will defaults in the once prime group. You could say that sub-prime is only a P45 away.

Edited by Lord D'arcy Pew

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What absolute codswallop to come out with such a generalisation.

Anything is sub-prime if you earn 10k pa

Anything over 1x non-liar income pa is sub-prime if you earn 15k pa.

Anything over 3x is sub-prime if you earn 30k.

Anything over 6x is sub-prime f you earn 75k.

There is no one-size-fits-all answer.

:D:D

And - What's the percentage of people in the UK who ACTUALLY earn over £30k? 4%?

i.e. Yes - What I said is a generalisation of sorts -- but it applies to the VAST MAJORITY of people here in the UK.

--------------

Latest figures for annual average income per head (£ per head) [August 2007]

http://www.nowpublic.com/uk_annual_average_earnings

UK

£13,302

England

£13,486

North East

£11,407

TeesValley and Durham

£11,380

Hartlepool and Stockton-on-Tees

£11,402

South Teesside

£10,980

Darlington

£11,670

Durham CC

£11,531

Northumberland and Tyne and Wear

£11,430

Northumberland

£12,833

Tyneside

£11,223

Sunderland

£10,481

North West

£12,199

Cumbria

£12,814

West Cumbria

£11,850

East Cumbria

£13,693

Cheshire

£13,989

Halton and Warrington

£12,628

Cheshire CC

£14,617

Greater Manchester

£11,833

Greater Manchester South

£11,956

Greater Manchester North

£11,691

Lancashire

£11,768

Blackburn with Darwen

£9,970

Blackpool

£11,085

Lancashire CC

£12,070

Merseyside

£11,810

East Merseyside

£10,992

Liverpool

£10,914

Sefton

£12,576

Wirral

£13,255

Yorkshire and the Humber

£12,224

East Riding and North Lincolnshire

£12,012

Kingston upon Hull, City of

£10,416

East Riding of Yorkshire

£13,460

North and North East Lincolnshire

£11,768

North Yorkshire

£13,784

York

£12,810

North YorkshireCC

£14,096

South Yorkshire

£11,696

Barnsley, Doncaster and Rotherham

£11,428

Sheffield

£12,089

West Yorkshire

£12,068

Bradford

£11,348

Leeds

£12,395

Calderdale, Kirklees and Wakefield

£12,192

East Midlands

£12,543

Derbyshire and Nottinghamshire

£12,251

Derby

£11,708

East Derbyshire

£11,863

South and West Derbyshire

£12,881

Nottingham

£10,071

North Nottinghamshire

£12,264

South Nottinghamshire

£13,877

Leicestershire, Rutland and Northamptonshire

£12,933

Leicester

£10,550

Leicestershire CC and Rutland

£13,684

Northamptonshire

£13,221

Lincolnshire

£12,489

Lincolnshire

West Midlands

£12,134

Herefordshire, Worcestershire and Warwickshire

£13,570

Herefordshire, County of

£12,394

Worcestershire

£13,508

Warwickshire

£14,029

Shropshireand Staffordshire

£12,393

Telford and Wrekin

£11,598

Shropshire CC

£13,181

Stoke-on-Trent

£10,372

Staffordshire CC

£12,862

West Midlands

£11,281

Birmingham

£10,961

Solihull

£15,162

Coventry

£11,167

Dudley and Sandwell

£10,954

Walsall and Wolverhampton

£10,813

East of England

£14,159

East Anglia

£13,166

Peterborough

£12,838

Cambridgeshire CC

£14,268

Norfolk

£12,322

Suffolk

£13,310

Bedfordshire and Hertfordshire

£15,126

Luton

£11,308

Bedfordshire CC

£13,902

Hertfordshire

£16,263

Essex

£14,569

Southend-on-Sea

£14,172

Thurrock

£12,436

Essex CC

£14,849

London

£15,842

Inner London

£17,198

Inner London - West

£22,441

Inner London - East

£13,973

Outer London

£14,948

Outer London - East and North East

£13,533

Outer London - South

£15,719

Outer London - West and North West

£15,715

South East

£14,898

Berkshire, Buckinghamshire and Oxfordshire

£15,496

Berkshire

£15,034

Milton Keynes

£13,943

Buckinghamshire CC

£17,415

Oxfordshire

£15,159

Surrey, East and West Sussex

£15,856

Brighton and Hove

£13,966

East SussexCC

£13,830

Surrey

£17,785

West Sussex

£15,092

Hampshire and Isle of Wight

£13,704

Portsmouth

£11,338

Southampton

£11,173

Hampshire CC

£14,720

Isle of Wight

£11,787

Kent

£13,911

Medway

£12,820

Kent CC

£14,111

South West

£13,260

Gloucestershire, Wiltshire and North Somerset

£13,710

Bristol, City of

£12,446

North and North East Somerset, South Gloucestershire

£13,979

Gloucestershire

£13,653

Swindon

£13,854

Wiltshire CC

£14,481

Dorset and Somerset

£13,558

Bournemouth and Poole

£13,547

Dorset CC

£14,037

Somerset

£13,192

Cornwalland Isles of Scilly

£12,101

Devon

£12,573

Plymouth

£11,635

Torbay

£11,807

Devon CC

£13,029

Edited by eric pebble

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I agree with Eric that anything over 3x is really a subprime loan. I'd even argue anything over 3x the highest income earner's in the household income is subprime. It was hard for people to see in the boom, but now in the bust it becomes obvious. Horrific job loss, overtime reduction, pay cuts, 'furloughs', etc..

I believe virtually everyone on 4x joint income will eventually default. What the exact cause is, or when I do not know. 50% of marriages end in divorce in the UK.. will health problems get the people.. will one of the couple get hit with the job loss - at any point in the next 10 years. Are they self-employed, will the business always produce the same or higher income, even in a depression? Like construction contractors, mortgage brokers, estate agents.

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What absolute codswallop to come out with such a generalisation.

Anything is sub-prime if you earn 10k pa

Anything over 1x non-liar income pa is sub-prime if you earn 15k pa.

Anything over 3x is sub-prime if you earn 30k.

Anything over 6x is sub-prime f you earn 75k.

There is no one-size-fits-all answer.

How on earth does your logic work, earning £75k make 6x viable? Really?

£75k nets around £4k a month net, or £48-50k per annum

6x £75k = £450k mortgage.

£450k mortgage at 6% interest rate = £27k purely in interest without even starting on capital repayments.

I guess yes, people can live on the other £21k of income but over 50% of your net income just to pay your mortgage interest? And you are suddenly very dependent on retaining your job.

As a single person viable perhaps (although I personally wouldn't obliterate my disposable income for 25 years by doing it), but not if you have a family in your budget.

Hope that interest rate doesn't go up to 10%. £45k in interest pa,... yippee!

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Guest KingCharles1st
Prime mortgages are going to be even bigger loss makers for the banks than subprime.

Subprime where sh1tty little loans, the loss from a prime loan may equal the losses from 5 or 6 subprime loans.

Brown trouser time.

Yep- this is what I have been alluding to for the last few weeks- it's happening, now, and the "rich person" on the "posh road" next to you is actually taking bigger faster hits than the poor chav bastards on the Estate.

200K property -30%= 140K 60K LOSS

500K property -30%= 350K 150K LOSS

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I believe virtually everyone on 4x joint income will eventually default. What the exact cause is, or when I do not know. 50% of marriages end in divorce in the UK.. will health problems get the people.. will one of the couple get hit with the job loss - at any point in the next 10 years. Are they self-employed, will the business always produce the same or higher income, even in a depression? Like construction contractors, mortgage brokers, estate agents.

Agreed. This is going to become a bigger issue over the next few years.

Can everyone stop quibbling about subprime defintions. The official definition of subprime is purely related to the credit scoring of the borrower, not the income multipliers. Whats interesting is as the recession goes on, the lesson won't be who money is lent to, but rather what it is lent against.

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How on earth does your logic work, earning £75k make 6x viable? Really?

£75k nets around £4k a month net, or £48-50k per annum

6x £75k = £450k mortgage.

£450k mortgage at 6% interest rate = £27k purely in interest without even starting on capital repayments.

I guess yes, people can live on the other £21k of income but over 50% of your net income just to pay your mortgage interest? And you are suddenly very dependent on retaining your job.

As a single person viable perhaps (although I personally wouldn't obliterate my disposable income for 25 years by doing it), but not if you have a family in your budget.

Hope that interest rate doesn't go up to 10%. £45k in interest pa,... yippee!

:P:lol: Yeah, Telometer - Put that in you pipe & smoke it... :P:P

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