Why next year's subprime mess may not be as bad as we think

We already know that in 2007, each quarter we had about $45 billion in loans re-adjust. We know that in 2008, that number will climb to $90 billion per quarter - double it's 07 number. But what isn't being talked about, and should be, is the truth behind who got these loans and why they may not be such a high risk afterall.

We assume that if the loan is a subprime loan, it must be "owned" or secured by a subprime borrower, yes? Not true. In 2005, the height of the subprime loans, 55% of subprime loans went to individuals that would have qualified for a conventional loan. Why? Banks were pushing the more creative-type financing on all individuals due to the higher profit margins, and people wanted flexibility and lower payments. Some needed this just to qualify for a home due to the rising prices.

Subprime usually means a credit score below 620. However, 55% of people who got subprime loans in 2005 would have qualified for conventional mortgages. Perhaps they wanted the flexibility of pay option ARMS, or they wanted interest only loans that weren't available on conventional type mortgages. But, they're paying for that decision now as their rates climb higher.

What's the upside to this? That the subprime crisis may not be as bad as we thought. There is a good chance those 55% of people CAN afford their mortgage, so the crisis next year, despite the number of loans in billions of dollars doubling, may not be as bad as we think. We won't know until it happens, but it's worth considering.

Dani

NAR's a lobby, not a reliable source

What is NAR exactly? Is NAR a lobby? A cheerleading organization? Truth tellers? Do they really give us an accurate picture of the real estate market? Do they have their finger on the pulse of the market? Why has the National Association of Realtors been wrong with predictions 70% of the time in 2007? Why have real estate agents made double the commission for the same amount of work during the housing market boom? Who fuels this nonsense? Why aren't agents unbundling their services? All questions we have to ask, particularly in the Internet era. In my opinion, NAR is a lobbiest, cheerleading organization with little accurate information about the real estate market. They cannot be trusted to tell the truth and are biased. Many agents have to join NAR just to get Multiple Listing Service (MLS) access. The video below says it all.