Of the total trillions worth mortgage loans contained by the US, what percent are subprime loans? ?
My guess is 95% of loans are not subprime and as such are NOT non-performing. If somene has $100 in the mound and $5 is eaten up it would not necessarily break the bank. Why is this exposure so burdensome that solid companies similar to lehman brothers are forced to go under?
Answers:
The loans are package into groups and sold to various companies - such as AIG; and a) Many companies are highly leveraged, so the effect of a high than predicted rate of defaults has a magnified effect, and b) some loan packages are written so that the buyer of the collection is exposed to a higher percentage of sub-prime loans (which translates to a higher defaulting rate and a higher interest rate) than the overall average- so their risk exposure is much higher than the overall average.
BTW Obviously not adjectives sub-prime loans are in default(non-performing), so you are not quite asking the right request for information. Also I don't think your 95% guess is close to accurate. But I don't have tangible numbers handy.
edit.
Your question made me curious, so I looked up the non-attendance rates and foreclosure rates for subprime US mortgage loans. The most recent rates I could find are for 2006. I have no doubt that current non-attendance and forclosure rates are much higher.
12.7% default rate 2006
4.5% foreclosure rate 2006
other edit:
Wall Street Journal weekend edition for Sept.20 reports that the current default rate for sub-prime loans is 25%. Source(s): http://www.census.gov/compendia/statab/c…
If you include the "no documentation" loans, the total is 35% of all outstanding loans. The no-doc loans are call Alt-A loans but they are mostly subprime because the buyers would never have been approved lower than normal underwriting standards..
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Answers:
The loans are package into groups and sold to various companies - such as AIG; and a) Many companies are highly leveraged, so the effect of a high than predicted rate of defaults has a magnified effect, and b) some loan packages are written so that the buyer of the collection is exposed to a higher percentage of sub-prime loans (which translates to a higher defaulting rate and a higher interest rate) than the overall average- so their risk exposure is much higher than the overall average.
BTW Obviously not adjectives sub-prime loans are in default(non-performing), so you are not quite asking the right request for information. Also I don't think your 95% guess is close to accurate. But I don't have tangible numbers handy.
edit.
Your question made me curious, so I looked up the non-attendance rates and foreclosure rates for subprime US mortgage loans. The most recent rates I could find are for 2006. I have no doubt that current non-attendance and forclosure rates are much higher.
12.7% default rate 2006
4.5% foreclosure rate 2006
other edit:
Wall Street Journal weekend edition for Sept.20 reports that the current default rate for sub-prime loans is 25%. Source(s): http://www.census.gov/compendia/statab/c…
If you include the "no documentation" loans, the total is 35% of all outstanding loans. The no-doc loans are call Alt-A loans but they are mostly subprime because the buyers would never have been approved lower than normal underwriting standards..
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