Speed of Subprime Bust Surprising Lenders

Speed of Subprime Bust Surprising Lenders

The subprime mortgage meltdown has been a shock to industry insiders, but now they say it's hitting harder and faster than expected – even to those who predicted the crisis in the first place.  Many would-be homebuyers are now finding they can no longer qualify for a mortgae due to stricter standards.

Speaking recently at a Mortgage Bankers Assoication Market Conference, David Lowman, a panelist and chief executive of JPMorgan Chase & Co.'s global mortgage business said, "Anything that smacks of no-income and no-documentation is history…Anything above 85 percent to 90 percent loan-to-value, anything non-owner occupied, anything ludicrous as to value – like someone stepping up from a $1,000 a month payment to a $6,000 a month – is history."

Investors who buy and sell bonds backed by the mortgage payments of ordinary homeowners have seen bad loans rise and have told lenders and brokers they will no longer buy whole classes of securitized mortgages, which can quickly pull the plug on a prospective home buyer.

All the fudging, the lax underwriting, the push for loans that went on during the housing boom were facilitated by the rapid rise of home prices. Outsized increases in home equity in many U.S. housing markets covered a multitude of sins and encouraged lenders to extend loans to poor risk borrowers.  That day has come and gone, but according to several analysts at the MBA, despite their surprise at the speed and depth of the subprime meltdown, many expect a quicker recovery than all the gloom and doom that is being broadcast everywhere.

The group cites a strong economy, low unemployment, and favorable demographic growth for their optimistic stance, that recovery will soon come.