- Prudential notes that The Senate Banking Committee, chaired by Christopher Dodd, held a hearing on Thursday regarding the subprime mortgage industry. Federal and state regulators, mortgage lenders, consumer advocates, lawyers and distressed borrowers testified at the hearing.
Firm's primary takeaway is that the credit quality of subprime mortgage is likely to continue deteriorating near term. Mortgage lenders at the hearing testified that they estimate that 40% to 60% of subprime mortgage borrowers would have failed to qualify if their mortgages were underwritten at fully-indexed interest rates, suggesting a widespread vulnerability to material rate resets. At the same time, the industry is still in the midst of implementing more restrictive regulatory guidelines on non-traditional mortgage, suggesting to Prudential that the availability of subprime credit could get curtailed further.
Firm believes that this hearing, similar to this committee's recent hearing on the credit card industry, reflects Congressional Democrats' twin themes of more visible assertion of oversight power and consumer protection. However, they are not sure whether there is any practical legislative solution to the perceived threat of higher subprime mortgage foreclosures beyond controversial "rescue" mortgages and regulatory dissuasion.
Notablecalls: 40% to 60% of of the subprime mortgage borrowers would have failed to qualify? Ouch!
Firm's primary takeaway is that the credit quality of subprime mortgage is likely to continue deteriorating near term. Mortgage lenders at the hearing testified that they estimate that 40% to 60% of subprime mortgage borrowers would have failed to qualify if their mortgages were underwritten at fully-indexed interest rates, suggesting a widespread vulnerability to material rate resets. At the same time, the industry is still in the midst of implementing more restrictive regulatory guidelines on non-traditional mortgage, suggesting to Prudential that the availability of subprime credit could get curtailed further.
Firm believes that this hearing, similar to this committee's recent hearing on the credit card industry, reflects Congressional Democrats' twin themes of more visible assertion of oversight power and consumer protection. However, they are not sure whether there is any practical legislative solution to the perceived threat of higher subprime mortgage foreclosures beyond controversial "rescue" mortgages and regulatory dissuasion.
Notablecalls: 40% to 60% of of the subprime mortgage borrowers would have failed to qualify? Ouch!
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