Many of you have probably heard on the news recently that the state of the “Sub-Prime†lending industry is currently in flux. Or you may have heard of the complete meltdown on the industry as a hole. The Sub-Prime market consists of non-traditional mortgages to consumers. Or mortgage programs that do not quite fit in the box. This could be anything for investor loans to home purchases. The reason for the sharp pullback in this segment of the mortgage industry stems from the fact that increased delinquencies, defaults, and foreclosure rates among these loans have caused Sub-Prime investors to deploy their funds into alternative investments. That is because most of this loans are a higher risk loan. Denver Refinance
This loans were for people that did not fit in the box. The box being the people that are less risky to loan to.
Couple this decreased portfolio performance with the current level of uncertainty within the housing industry, and investors have either decided to invest in other securities or have been forced out of the industry altogether. No one really knows how to price this type of loans. That because before the melt down, their was a model that was used to price this bundled mortgages. Mortgages that are bundled are just a bunch on loans that are put together with certain guide lines. Before the melt down their was a computer program that was used to let the inverters know what the price of this bundled mortgages are going to be worth. The problem with this is that the program was written with the wrong information. That is why no one wants to buy this loans now. New Century, the 2nd largest provider of these loans has been de-listed from the NYSE and is facing bankruptcy proceedings. Several other Sub- Prime lenders have also witnessed a rapid decline in stock price due to similar performance issues.
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