Based on current performance, 2006 is on track to be one of the worst ever for subprime loans, according to UBS AG. “We are a bit surprised by how fast this has unraveled,” says Thomas Zimmerman, head of asset-backed securities research at UBS. Roughly 80,000 subprime borrowers who took out mortgages packaged into securities this year are behind on their payments, the bank says.
Predicting losses on these securities is a challenge because there’s little or no historical evidence to show how subprime loans will perform at a time when home prices are falling, says Thomas Lawler, a housing economist in Vienna, Va. An analysis by Merrill Lynch & Co. found that losses on recent subprime deals could be “in the 6% to 8% range” if home prices are flat next year and could rise to the “double digits” if home prices fall by 5%. Falling home prices could trigger losses not only for investors who bought riskier classes of mortgage-backed securities, but also for some holders of A-rated bonds, according to the report.
If only there were a way to discern how many subprime loans had been written in the Charlottesville/Central Virginia market … there will be opportunities to help people out who need it. Subprime loans do serve an important segment of the market. My concern is that they have been marketed and written to those who may not have had any business getting a mortgage. Some people are best suited to rent.
Locally, Toll Brothers does not have a presence (yet), so take their news for what it’s worth in relation to our market.