55% of sub-prime mortgages could have been better deals for folks with a downpayment and better credit


“One common assumption about the subprime mortgage crisis is that it revolves around borrowers with sketchy credit who couldn’t have bought a home without paying punitively high interest rates. But it turns out that plenty of people with seemingly good credit are also caught in the subprime trap.

“An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.

“In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores got more than half — 55% — of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are. The study by First American LoanPerformance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61%. The figure was just 41% in 2000, according to the study. Even a significant number of borrowers with top-notch credit signed up for expensive subprime loans, the firm’s analysis found.”
Subprime Debacle Traps Even Very Credit-Worthy, By Rick Brooks and Ruth Simon, WJS online, December 3, 2007 (via Dr. Kruguman via Dr. Delong)

I would say buyer beware, except I’ve been talked into bad deals my own self.

Okay, let’s bail ’em all out. 60 year mortgages for everyone who wants one!

And while I have you, when did bankers get so stupid? The greed thing I can sort of understand, some people call it market capitalism, but the stupidity part puzzles me.

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