What happens to "good" subprime loans?
Hi all - I hope this is right area for this question. Maybe someone within here can conjecture for me...
If, say, 20% (or pick your number - who knows at this point?) of subprime loans default for a big subprime lender like New Century, and the big lender goes under, what happens to the +/-80% of loans for which the borrowers are still current?
Do they get resold to other still-solvent lenders? What if there's not a market for these "stinky" but currently paid loans? Since they carry a much higher risk given the current state of the subprime market, and also will have likely higher rates of foreclosure in the future - who would buy these loans? Would there be a rebate for the loan purchase, given the potential risk?
I've heard a lot about lenders potentially losing AAA bond status for having too high a % of risky loans - won't this also seriously hamper the potential for remaining solvent lenders to take on (so far) active & still-good subprime loans?
Just wondering.
If, say, 20% (or pick your number - who knows at this point?) of subprime loans default for a big subprime lender like New Century, and the big lender goes under, what happens to the +/-80% of loans for which the borrowers are still current?
Do they get resold to other still-solvent lenders? What if there's not a market for these "stinky" but currently paid loans? Since they carry a much higher risk given the current state of the subprime market, and also will have likely higher rates of foreclosure in the future - who would buy these loans? Would there be a rebate for the loan purchase, given the potential risk?
I've heard a lot about lenders potentially losing AAA bond status for having too high a % of risky loans - won't this also seriously hamper the potential for remaining solvent lenders to take on (so far) active & still-good subprime loans?
Just wondering.
Comments
A few days ago some hedge fund agreed to purchase all of FMT? (I think it was Fremont) loans and only got a 4% discount! Hello? Something is very wrong here. They'll be lucky to get 20c on the dollar imo.
My take on the purchases at .96/1.00 was just the banks desperately trying to spread the bad debt out and the loans (after a *comfortable* loss has been absorbed by the holder) will be resold for less and less to whomever might be deemed as the most stable bank at the time.
It's just a guess...but I doubt that Credit Suisse will be the next big purchaser of bad loans (didn't they buy a bunch also recently?) and I'm pretty sure that HSBC is out of the picture for a while too. I'm sure that this will be going on for a while but as soon as the Alt-A issue hits hard with all the resets this year...who knows...all bets may be off.
This is really kind of a kooky thing to try to follow.