Interesting analysis by Wall Street Journal yesterday of $2.5 Trillion in sub prime loans made from 2000-2007 showed that share going to applicants with credit scores ABOVE 620, which likely qualified many for prime loans, increased from 41% to 55% from 2000-2005.
Story also says that sub prime originations for mortgage brokers were more lucrative than conforming loans, yielding 1.88% in origination fees vs 1.48% for conforming loans. (This 27% fee differential would provide a clear incentive to "steer" borrowers to sub prime loan products).
Journal story is HERE, Interactive chart showing sub prime share by quarter by credit score is HERE.
RATE SHEET EXAMPLE: Story provides examples of sub prime loan fees from now defunct sub prime lender New Century Mortgage. Story says that brokers could earn a yield spread premium of 2% if they delivered a loan that was 1.25% higher than the rate shown on New Century rate sheet for Southern California. Delivering such a high priced $400,000 loan provided the broker with $8,000 in yield spread premium fees, another incentive for brokers to steer borrowers to higher cost sub prime loans.
View a detailed interactive version of that New Century rate sheet HERE.
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