of the total trillions worth mortgage loans in the US, what percent are subprime loans? ?

Deal Score0

My guess is 95% of loans are not subprime and as such are NOT non-performing. If somene has $ 100 in the bank and $ 5 is eaten up it would not necessarily break the bank. Why is this exposure so burdensome that solid companies like lehman brothers are forced to go under?

2 Comments
  1. Reply
    liberal_60
    January 26, 2011 at 12:21 pm

    The loans are packaged into groups and sold to various companies – such as AIG; and a) Many companies are highly leveraged, so the effect of a higher than predicted rate of defaults has a magnified effect, and b) some loan packages are written so that the buyer of the package is exposed to a higher percentage of sub-prime loans (which translates to a higher default rate and a higher interest rate) than the overall average- so their risk exposure is much higher than the overall average.

    BTW Obviously not all sub-prime loans are in default(non-performing), so you are not quite asking the right question. Also I don’t think your 95% guess is close to accurate. But I don’t have real numbers handy.

    edit.
    Your question made me curious, so I looked up the default rates and foreclosure rates for subprime US mortgage loans. The most recent rates I could find are for 2006. I have no doubt that current default and forclosure rates are much higher.
    12.7% default rate 2006
    4.5% foreclosure rate 2006

    additional edit:
    Wall Street Journal weekend edition for Sept.20 reports that the current default rate for sub-prime loans is 25%.

  2. Reply
    Ed Atun
    January 26, 2011 at 1:01 pm

    If you include the “no documentation” loans, the total is 35% of all outstanding loans. The no-doc loans are called Alt-A loans but they are mostly subprime because the buyers would never have been approved under normal underwriting standards..

    Leave a reply

    Register New Account
    Reset Password