The assumption that the subprime mortgage crisis is limited to buyers with poor credit is mistaken, according to an analysis prepared for The Wall Street Journal, which examined more than $2.5 million in subprime loans made since 2000.
In 2005, the peak year of the subprime boom, borrowers with credit scores high enough to qualify for a normal loan received 55 percent of all subprime mortgages, the study says.
The study by First American LoanPerformance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61 percent.
“Brokers and agents were telling” borrowers with high credit scores for the past several years “that it was OK” to get subprime loans, “and borrowers were wanting to take on more debt,” says Mark Carrington, director, analytical sales and support at First American LoanPerformance.
Analysts conclude that credit-worthy borrowers holding subprime loans may be more likely than traditional subprime borrowers to afford to double whammy of rising rates and declining values.
The data could explain why nearly 80 percent of the borrowers with subprime loans have continued to keep their loan payments current, according to some analysts, and suggests that the crisis won’t deepen as much as some fear.
Source: The Wall Street Journal, Rick Brooks and Ruth Simon