Subprime Time?

A mixed outlook for subprime lending
By SAM GARCIA
5/20/2002

Having peaked last November at 5534.5, the refinance index reported by the Mortgage Bankers Association of America is now down to 1556.2, leaving some originators scrambling to find other types of business. The drop in refinance activity occurred as the average 30-year fixed rate announced by Freddie Mac has risen from a recent low of 6.45% to 6.89% last week.

Within about a year of the 1993 refinance boom -- when the 30-year fell to 6.83% -- the 30-year climbed to more than nine percent. At the same time, subprime mortgage originations jumped. According to HUD, the subprime share of the overall mortgage market went from $20 billion in 1993 to $150 billion by 1998.

Could the currently fading refinance market mean that we are headed into a subprime mortgage boom again?

Ratings agency Moody's Investor Service recently reported that home equity securitizations -- which include subprime mortgage loans -- were $97 billion during 2001, 63% more than the prior year. Moody's expects home equity securitizations to reach $105 billion this year. Moody's said the top issuers of subprime mortgage backed securities (MBS) during 2001 were RFC (13%), Option One (10%) and Chase (7%).

Securitizations only represent part of the overall subprime market, with some lenders holding these loans in their portfolios.

Because mortgage rates are expected to head even higher by the end of this year, further declines in refinance activity may provide even more fuel for a subprime resurgence.

So who are today's subprime players? The following companies were ranked by MortgageStats.com based on their subprime volume during the 4th quarter of last year.

Special Programs