Roubini: Sub-Prime is HALF the Mortgage Market

Nouriel Roubini argues that housing bulls who believe "sub-prime is only 6% of the mortgage market" are hallucinating.  The real figure, he suggests, is closer to 50%.

Roubini's logic?

1. Sub-prime are now 13% of the stock of mortgages, not 6%.
2. Sub-prime mortgages were at least 20% of mortgage originations in 2005 and 2006.
3. The same “monster” lending practices used for subprime mortgages were also used for most “near-prime” and “prime” mortgages.
4. Many pseudo “near-prime” mortgages (such as Alt-A) are undistinguishable from sub-prime ones and have now sharply rising default rates
5. What is defined as sub-prime is subject to highly cosmetic accounting by banks: the rule that FICO scores of 660 or below are sub-prime is often diluted down to 630 or even 620 to exclude many mortgages from a sub-prime classification.
6. Counting all of the categories above, subprime-like mortgages accounted for almost 50% of all originations in 2005 and 2006 not the 6% figure spinned by the industry lobbies.

Will sub-prime spill over into "near prime" and prime"?  Others will no doubt argue "no," but the logic is familiar.  I will never forget the morning meetings in the fall of 2000 when technology analyst after technology analyst argued fervently (and convincingly) that the consumer-Internet meltdown that had clobbered the wacky dotcoms would never spill over into telecom equipment, semiconductors, software, etc.  It took six months, but boy did those dominoes fall...

Comments

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I agree with you. Sub-prime mortgages is closer to 50% of the Mortgage market and rising. And it is unlikely that Sub-prime will spill over near-prime and prime mortgages. No question about it.