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gruffydd

25% Of Subprime Mortgages Disappear

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http://www.citywire.co.uk/News/NewsArticle...enuKey=News.IFA

Mortgage lenders tighten sub-prime lending criteria

Mortgage lenders are tightening up on their lending criteria and those most likely to feel the pinch are borrowers with a poor credit track record. It is estimated that some 25% of sub-prime mortgage applications accepted in August of this year would now be declined if they were new applications.

Edited by gruffydd

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that still means that the t*ssers are still approving 75% of them

Yet "There is no sub-prime in the UK"

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that still means that the t*ssers are still approving 75% of them

Yet "There is no sub-prime in the UK"

What's the problem with sub-prime if it is priced correctly? If the interest rate reflects the true default rate, where's the problem? Presumably for many who previously would have been granted a sub prime mortgage, when the interest rate is set correctly to reflect the risk of default, the proposition is simply too expensive, and hence it "disappears". But in general, I don't understand what the problem is if the rate reflects the chance of default.

Surely the big problem with sub prime recently was that the risk of default was actually much higher than was allowed for by the interest rate set. Now, presumably if the interest rate had reflected the default risk, the mortgages would never have actually been taken up, because it wouldn't have been possible for people to afford them at the "proper" price.

There were headlines a few days ago along the lines of "a huge percentage of mortgages that default are sub prime". Well, so the feck what? That's exactly what you'd expect isn't it? High risk of defaulting countered by high interest rate to reflect it. But you'll still expect to get the higher than average default rate. So you'll still find a disproportionate fraction of defaults in sub prime, by bl0ody definition, surely?

Edited by Levy process

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What's the problem with sub-prime if it is priced correctly? If the interest rate reflects the true default rate, where's the problem? Presumably for many who previously would have been granted a sub prime mortgage, when the interest rate is set correctly to reflect the risk of default, the proposition is simply too expensive, and hence it "disappears". But in general, I don't understand what the problem is if the rate reflects the chance of default.

Surely the big problem with sub prime recently was that the risk of default was actually much higher than was allowed for by the interest rate set. Now, presumably if the interest rate had reflected the default risk, the mortgages would never have actually been taken up, because it wouldn't have been possible for people to afford them at the "proper" price.

There were headlines a few days ago along the lines of "a huge percentage of mortgages that default are sub prime". Well, so the feck what? That's exactly what you'd expect isn't it? High risk of defaulting countered by high interest rate to reflect it. But you'll still expect to get the higher than average default rate. So you'll still find a disproportionate fraction of defaults in sub prime, by bl0ody definition, surely?

I think you answered that yourself- the risk IS NOT priced in

the last thing the economy needs is a ton of defaults- the knock on is disaster- The CDO's created to hide these high risk mortgages and were supposed to protect the investors by spreading the toxic sub prime stuff, are sent back to the issuers if the defaults reach a certain (low) level, and the CDO doesnt earn.

When a ton of CDO are returned, mortgage issuers go bust, banks dont buy the existing ones and the credit crunch is started- Its happended in the US< and it will all be added to several fold as UK ones default in much greater numbers.

Thats the problem

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What's the problem with sub-prime if it is priced correctly? If the interest rate reflects the true default rate, where's the problem? Presumably for many who previously would have been granted a sub prime mortgage, when the interest rate is set correctly to reflect the risk of default, the proposition is simply too expensive, and hence it "disappears". But in general, I don't understand what the problem is if the rate reflects the chance of default.

Surely the big problem with sub prime recently was that the risk of default was actually much higher than was allowed for by the interest rate set. Now, presumably if the interest rate had reflected the default risk, the mortgages would never have actually been taken up, because it wouldn't have been possible for people to afford them at the "proper" price.

There were headlines a few days ago along the lines of "a huge percentage of mortgages that default are sub prime". Well, so the feck what? That's exactly what you'd expect isn't it? High risk of defaulting countered by high interest rate to reflect it. But you'll still expect to get the higher than average default rate. So you'll still find a disproportionate fraction of defaults in sub prime, by bl0ody definition, surely?

you are right, but only in the rising market

there is no way you can price the sub prime mortgage if you default and the house is repossessed in 6 months for 70% of it is original price

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that still means that the t*ssers are still approving 75% of them

Yet "There is no sub-prime in the UK"

But at what price have they been approved? At pretty horrendous rates of interest I guess.

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that still means that the t*ssers are still approving 75% of them

Yet "There is no sub-prime in the UK"

I see what you mean and sympathise Mr Loo, but that isn't what the article says. It says that 25% of applicants would have been rejected on current criteria. It doesn't estimate how many of the other 75% are no longer desperate to get a mortgage at any price to get on the ladder. I think this is the most bearish development since Nortern Rock became indisposed.

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I think you answered that yourself- the risk IS NOT priced in

the last thing the economy needs is a ton of defaults- the knock on is disaster- The CDO's created to hide these high risk mortgages and were supposed to protect the investors by spreading the toxic sub prime stuff, are sent back to the issuers if the defaults reach a certain (low) level, and the CDO doesnt earn.

WRONG!!!

what happens when we get tons of defaults??

..the currency is debased,whether it be lower IR's,falling HP's etc etc.

if the economy is diverse enough it will not suffer in it's entirity.

..

However,that does not mean ALL sectors of the economy will be rosy,some will go tits-up,some will flourish because the weakened currency makes exporting cheaper.

stagflation is on the cards,but the CONSUMER will feel the heat hardest.

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http://www.citywire.co.uk/News/NewsArticle...enuKey=News.IFA

Mortgage lenders tighten sub-prime lending criteria

Mortgage lenders are tightening up on their lending criteria and those most likely to feel the pinch are borrowers with a poor credit track record. It is estimated that some 25% of sub-prime mortgage applications accepted in August of this year would now be declined if they were new applications.

Thought there was no subprime mortgage market in the UK ? Ho Hum

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I think you answered that yourself- the risk IS NOT priced in

the last thing the economy needs is a ton of defaults- the knock on is disaster- The CDO's created to hide these high risk mortgages and were supposed to protect the investors by spreading the toxic sub prime stuff, are sent back to the issuers if the defaults reach a certain (low) level, and the CDO doesnt earn.

WRONG!!!

what happens when we get tons of defaults??

..the currency is debased,whether it be lower IR's,falling HP's etc etc.

if the economy is diverse enough it will not suffer in it's entirity.

..

However,that does not mean ALL sectors of the economy will be rosy,some will go tits-up,some will flourish because the weakened currency makes exporting cheaper.

stagflation is on the cards,but the CONSUMER will feel the heat hardest.

hmm, dont know about wrong, just not the complete picture.

my point was that sub-prime caused the credit crunch in the US. many pundits think the credit crunch is just about over.

I dont think that. My point was that the defaults would result in CDO's going pop- this has already happened, then we have a ton more CDOs issued by our subrpime lenders, and the resulting defaults will have the same effect as the US, only we have a lot more of them.

Yes, it is also true what you say, and again this is evidenced by the US experiance of the last month or two.

And at the end of the day, it is the consumer- thats all of us- who has to pay.

so if 25% of the August apps would now be rejected, that still means that 75% of them would be accepted- Lets just hope and pray that the risk they represent is priced in properly- If it is, not many of these offers will pass into reality.

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I see, you lend people with a poor credit rating large sums of money that realisticly they can't afford on 'interest only' at a 'rate that reflects the chance of default' often, after a short period of discount. In other words the interest rate will be much higher than what a person with a better rating would pay. So the chance of default is high.

What is the point?

Who wins?

Who profits?

Has the world gone mad? :ph34r:

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