Are Mortgage Lenders on Thin Ice?by
You know what gets me nervous? When people who usually say calming things seem to be getting a little nervous.
Standard & Poor's, which like BusinessWeek is owned by the McGraw-Hill Companies, has a piece in the Dec. 14 issue of CreditWeek reassuringly entitled, "Banks Facing Higher But Manageable Credit Risk Challenges." But there on the first page, S&P says:
Nevertheless, the new layering of risk in mortgage loans and the introduction of new products to higher risk profile customers is unprecedented, and these loans' credit performance is untested in weaker housing markets.
Friedman Billings Ramsey, an investment bank in Arlington, Va., has a generally more optimistic outlook. (Full disclosure: FBR's sister company, First NLC, is a leading subprime lender.)
FBR analyzes the outlook for income gains by metro area, energy costs, and the reset dates for different kinds of loans. It concludes that most subprime borrowers will be protected by various caps. "The ARMS are festooned with caps," Michael Youngblood, the author, told me this afternoon.
Youngblood concludes that no more than 20% (19.75%, to be precise) of any particular variety of prime ARM borrowers are vulnerable to shock, and those are in 78 of the nation's 331 metro areas. Youngblood says there's no regional concentration of where those vulnerable metro areas are. It amounts to a relatively small share of all loans outstanding.
To be continued....