Non-Prime Mortgage Originations Hit 17-Year Low in 2008

February 27, 2009 No Comments »


The origination of non-prime mortgages fell to its lowest point in 17 years in 2008, according to a new report from Inside Mortgage Finance.

An estimated $64 billion in subprime, Alt-A, and “other” non-prime mortgages were originated last year, the lowest total since 1991.

That year, production of non-prime mortgages was just $59 billion.  In 2005, subprime lending alone totaled $795 billion, representing 24.13 percent of the $3.3 trillion in total residential home loan volume.

A year later, volume fell to $674 billion, and then to just $182 billion in 2007, according to data compiled by National Mortgage News.

Since the mortgage crisis began around late 2006, tightened underwriting guidelines and a severely impaired secondary market have reduced non-prime credit availability.

Subprime and Alt-A loans have been at the heart of the crisis, as they’ve exhibited default rates substantially higher than their prime mortgage brethren.

Freddie Mac recently noted that Alt-A loans represent a fraction of its single family portfolio, but account for half of its seriously delinquent mortgages.

Attributes such as low credit score, high loan-to-value, or reduced documentation are all reasons why a loan could be considered Alt-A, which may explain the spike in delinquencies.

In August of last year, both Fannie Mae and Freddie Mac announced they would no longer purchase or securitize any mortgages deemed “subprime” in New York State.

But it’s not just subprime and Alt-A that are the problem, as even the most creditworthy borrowers are failing to pay their mortgages, whether by necessity because of job loss or simply because the home is no longer viewed as an investment.

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