Bad Credit Is A Booming Business

[jeffrey]

Mortgage companies have found that lending to people who have less than stellar credit can be profitable business. The subprime lending market (higher-interest loans to consumers with poor or no credit histories) has been the fastest-growing part of the mortgage industry growing an average of 25% each year since 1994. There were some $330 billion in subprime mortgages lent in 2003, approximately 9% of the mortgages issued.

There are risks involved for the subprime lenders. The default rate for subprime loans has historically been much higher than that of prime loans. Just over 10% of subprime loans were past due in mid-2004 compared to a 2.4% past due rate according to the Mortgage Bankers Association. An additional 4.61% of subprime loans were in foreclosure in mid-2004 while only 0.49% of prime loans were in foreclosure.




Look for subprime loan competition to heat up as interest rates begin to rise. Unlike prime loans which tens to be interest sensitive, subprime loans aren't effected nearly as much even when interest rates rise since the rates are already quite high.