Why a 15% subprime delinquency rate is such a big deal

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socalhousingbubble_IHB

socalhousingbubble_IHB

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I've heard a few (Gary Watts?) rationalize that since subprime is a "fraction" of the overall outstanding mortage market, we shouldn't be getting so excited (bears=hopeful) about the delinquency rates. Well, I actually remember this argument from 6 months or so ago, but JUST IN CASE anyone is still harboring doubts, this interesting tidbit today:

The major averages shook off weakness stemming from the Mortgage Bankers Association, which released a report that said 5.1% of the loans in its survey were delinquent in the second quarter and that the number of dwellings entering foreclosure hit a record high. Subprime delinquencies rose to 14.82%, the highest since the second quarter of 2002. Ian Shepherdson, chief economist with High Frequency Economics, said there is a big difference between the subprime book in the second quarter of 2007 and that of five years ago.

"In the second quarter of 2002, there were 1.19 million subprime loans outstanding; now there are about 5.9 million," he said. "In other words, a 14.82% subprime delinquency rate now is equivalent to a 74% rate in 2002. That's why the problem now is so much worse despite similar headline delinquency rates."

SCHB
 
EvaL -Some of the builders are preparing for this. The ones that don't will get burned. Like you said they will buy down the rate and only the builders with cash will be able to do this. After KHOVs numbers today they won't be one of them.

SCHB - The dollar numbers you cite seem really low. CFC would do $1bil subprime pool a month. Or is it because I am in a hurry and didn't read it correctly?
 
Eva -

Actually...you can get a lower rate than 7.5% now for a jumbo loan.

My LO was willing to give me 6.25% today. The only catch is that I'd be paying 4-5 points!
 
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