where does subprime begin and end?
Am I the only one who gets confused as to what all the articles talking about "subprime" mortgages are really referring to? Yes, I understand that subprime loans are those to people with poor credit. However, many articles seem to liberally talk about 100% interest, option ARM, and 0 down loans at the same time as they mention subprime.
Is there a high correlation between these "exotic" mortgage varieties and subprime lending? Or are 30 year fixed mortgages just as prevalent in the subprime space as in the prime A paper lot?
Or, looking at it another way, can we generally infer that most exotic loans are subprime?
This question particularly interest me because I would like to know if the collapse of the subprime market is going to have a marked effect on any of these exotic loan varieties. If it turns out that exotic loans are the same proportion in the subprime space as the prime arena, then maybe all the problems in subprime won't have a particular effect, one way or the other, with the exotic loans.
Is there a high correlation between these "exotic" mortgage varieties and subprime lending? Or are 30 year fixed mortgages just as prevalent in the subprime space as in the prime A paper lot?
Or, looking at it another way, can we generally infer that most exotic loans are subprime?
This question particularly interest me because I would like to know if the collapse of the subprime market is going to have a marked effect on any of these exotic loan varieties. If it turns out that exotic loans are the same proportion in the subprime space as the prime arena, then maybe all the problems in subprime won't have a particular effect, one way or the other, with the exotic loans.
Comments
0 down, interest only, 80/20, etc do not have to be subprime. Subprime merely refers to loans given to people that do not qualify for prime loans due to problems with their credit. Traditionally subprime candidates have a higher risk of default and therefore pay a higher rate.
But can it be said that subprime loans make up a disproportionate amount of any of these "exotic" mortgage varieties? Conversely, are the majority of subprime loans of these "exotic" varieties? For example, I find it hard to believe that many subprime borrowers went for 30 year fixed loans.
It goes through many many hands and many different little schemes. These are insured by some new-fangled entity that I can't remember the name of. Anyway, what is worrying investors, is that there are more sub-prime defaults then the invesotrs thought there would be, and the insurance entities that promised to cover them won't be able to.
Couple that with good credit risks defaulting due to interest re-adjustments, and we are in for a wang banger of a ride.
I hope that explains it a bit better....or even a little. Finance people have a hard time getting this tangle worked out, how does ine expect us peons to figure it out?
Collateralized Debt Obligations (CDOs) maybe?
http://www.prudentbear.com/articles/show/355
Think prime: good borrower with good fico with hefty downpayment and low debt ratios.