We don’t do subprime…really.

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That might be a common refrain you hear these days from mortgage brokers and lenders who try to position themselves away from the subprime debacle. Hearing it over and over is a bit unbelievable until you look at the numbers. PJ from Housing Wire notes the volume of subprime loans made in the first quarter "fell off a cliff":

As reported by the National Mortgage News:

Mortgage bankers funded just $88 billion in subprime residential loans
during the first quarter â?¦ subprime production accounted for just 12%
of all loans originated in the United States, compared with a high of
24% in 2005. The last time subprimeâ??s quarterly share was this low came
in the third quarter of 2003, when A-minus to D production accounted
for 9.2% of the industryâ??s fundings.

So perhaps the mortgage brokers are telling the truth – they aren’t doing subprime loans. I suspect this has to do with the massive change in underwriting guidelines, with many lenders eliminating the high loan-to-value subprime loan products from their offerings. Even the lenders that continue to offer high LTV products have priced them exceptionally high, which makes them near-impossible to qualify for or afford.

With the reduction in property values many of these subprime borrowers can no longer qualify for a loan that would have been very easy to obtain only a few short years ago. It will be interesting to see if lenders tighten their guidelines further in response to the Wall Street asset devaluation currently taking place, or if they ease up to try to capture more origination volume. My bet is that the smart ones stay away for another couple of years on the high LTV subprime loans.