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

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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?

  1. Reply
    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.

    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..

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