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Cascade: No. 56, Winter 2004

Subprime Market Reaches Record High Level in First Half of 2004

Editor's Note: The following information is provided to illuminate recent lending activity in the subprime market. The information is from Inside B&C Lending, a newsletter published by Inside Mortgage Finance Publications in Bethesda, MD.

Subprime lenders originated loans totaling an estimated $252.6 billion in the first half of 2004, a record high for a six-month period and up 87.1 percent over the corresponding period in 2003, according to the August 9, 2004, issue of the publication Inside B&C Lending.

The publication said that in contrast, during the same period overall originations of one- to four-family residential mortgages fell nearly 30 percent, FHA lending dropped 32.8 percent, and VA lending declined 31.9 percent.

During the first half of 2004, subprime lenders increased their share of total mortgage production to 18.2 percent, their highest market share since 1997, Inside B&C Lending said.

It gave the following reasons for subprime lenders’ experiencing much stronger growth than prime lenders: the end of the refinance boom has not had as much impact in the subprime market and brokers have reportedly begun to focus their efforts on hard-to-place loans; there has been a proliferation this year of adjustable-rate mortgages, including interest-only loans, which are popular with marginal borrowers trying to cope with increasing home prices; and the securitization market has been strong. It said that 60.3 percent of the subprime loans generated during the first half of the year were included in securitization pools.

Inside B&C Lending estimated that Ameriquest Mortgage Company was the leading B&C lender, with $38.16 billion in new subprime loans and a 15.1 percent market share in the first six months of 2004. Ameriquest increased its subprime lending 163.2 percent over the year-earlier period, it said.

The publication defines B&C mortgages as less than A quality, nonagency loans secured by real estate. Its estimates are based on data provided by subprime mortgage and home equity lenders, earnings reports, and public documents. Its data include wholesale purchases, including loans closed by correspondents.

Using the same data sources, the publication estimated in its August 23, 2004, issue that the 25 largest subprime servicers held 81.3 percent of a total of $822.5 billion in subprime loans that were outstanding at the end of June 2004. Ameriquest Mortgage Company was the servicer that held the largest loan portfolio, which it said totaled $71.84 billion.