Subprime Stats...

Here are some stats from the Wall Street Journal as posted by Towel Talk on the subprime market that are fairly interesting.

• Subprime loans have grown to 12.75% of the $10.2 trillion mortgage market in 2006, up from 8.5% in 2001 (Wow! That is 1.3 trillion just for '06)
• 47% of subprime loans are "creative" -- up from 2% in 2000 -- featuring "piggyback" loans which require no down payment and "no-doc" loans that let borrowers state their incomes without supporting documentation. While this creativity works fine when housing prices rise -- if a borrower defaults, the lender can profit by selling the property -- it does not work when housing prices are going down. (Hello! That is $611 billion in creative financing. At an average price of $235k - that is 2,600,000 homes.)
• 80% of subprime mortgages are exploding ARMs (adjustable-rate mortgages) with low fixed-interest payments in their first few years which later adjust to higher interest payments. When the ARM adjusts upward, some borrowers can't afford to pay. The resulting foreclosures lead the mortgage company to sell the house to get back some of the loan principal. The sudden increase in the supply of houses on the market puts further downward pressure on prices. (Math, people...do the math. That's $1,040,000,000 in exploding ARMS! That is a lot of zeros.)
• Nearly 1.2 million foreclosure filings were reported in 2006, up 42% from 2005, representing one in 92 U.S. households. This trend will worsen if interest rates rise.
  Borrowers have never been more leveraged. Loan-to-value ratios, the loan amount expressed as a percent of the property value, have grown to 86.5% last year from 78% in 2000. With all the new supply on the market, these loan-to-value ratios are likely to rise as the values decline. This will mean steeper loan writeoffs for mortgage lenders which will deplete their capital. (No comment necessary.)
• At least 20 subprime lenders have filed for bankruptcy or have been sold. As mortgage-backed securities buyers exercise their rights to force mortgage originators to buy back the bad loans, the loan originators will likely be unable to come up with the buyback cash -- leading more of them to file for bankruptcy.