Friday, October 12, 2007

“Subprime” – it’s all about the multiples

The United States of Subprime

It used to be that high-rate borrowers weren't allowed to stretch as much as conventional borrowers on loan amounts, a reflection of their higher credit risk. But as home prices rose throughout the U.S. in the early 2000s, lenders grew more willing to let high-rate borrowers get bigger loans as measured against their annual incomes. In 2005, borrowers who got high-rate mortgages to buy one- to four-family homes were loaned 2.1 times their reported annual income, on average, according to the data. That was 4% higher than regular borrowers.Kristine McMahon has a six-figure income as a mortgage broker and lives in a four-bedroom home in East Hampton, N.Y., valued at more than $2.7 million. Yet Ms. McMahon, who works for Manhattan Mortgage, chose a subprime loan for herself when she refinanced

Posted by lvmreader @ 05:13 PM (689 views)
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3 thoughts on ““Subprime” – it’s all about the multiples

  • I’m not sure what’s worse: the greed of the lenders and their commissioned sales staff of the stupidity of the borrowers. Good thing we don’t have a subprime problem here eh? (sarcasm)

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  • Did i read that right? “In 2005, borrowers who got high-rate mortgages to buy one- to four-family homes were loaned 2.1 times their reported annual income, on average, according to the data. That was 4% higher than regular borrowers.”
    ” The area’s [Fort myers florida] median sales price for existing homes is down 22% since December 2005. Foreclosures are running at an all-time high. And there is no end in sight.”

    On a price multiple of 2.1? Am i missing something or are we really in the proverbial S__T?

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  • Anyone who overstretched to make his/her mortgage payments (and who pays higher mortgage interest to reflect this) is sub-prime. When house prices were going crazy all sections of society wanted to maximise their housing equity/profit so they overstretched themselves. Sub-prime is a MUCH bigger problem, in the US and elsewhere, than lenders, EAs and their media mouthpieces would have us believe.

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