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The Impact of the Subprime Market

The fallout from the rising defaults and delinquencies seen in the subprime mortgage market is having far reaching consequences. To date, over twenty 20 subprime lenders have closed, been sold, or filed for bankruptcy. It doesn’t stop there. Financial institutions such as HSBC Holdings PLC, Merrill Lynch & Co. and J.P. Morgan Chase & Co. who had excitedly bought subprime loans in 2005 and 2006 because of the higher interest rates they offered are now faced with significant losses. They are trying to force mortgage originators to now buy back some of those risky loans and cut their losses and run. Most experts agree that the impact of the subprime market will continue to be felt for some time.

Why is this particular market having such an impact? The answer may well lie in the numbers:

  • In ‘06, subprime loans made up 12.75% of the $10.2 trillion mortgage market. (Source: Inside Mortgage Finance)
  • The three top subprime lenders — Countrywide, New Century and Option One– had a roughly 21% market share combined last year. The top 10 controlled less than 60% of the market. (Source: UBS report)
  • About 80% of subprime mortgages today are adjustable-rate mortgages (ARMs)
  • “Piggyback,” “interest-only,” and “no-doc” loans (creative subprime loans)– accounted for 47% of total loans issued last year.

    • This entry was posted on Tuesday, February 20th, 2007 at 11:22 am and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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