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| In Search of the Bad Loans and the Lenders Behind Them |
| Written by Jonathan Smoke | |
| 08.22.2007 | |
Discuss this article on the forums. (0 posts)  A new study released this week by SMR Research presented some fairly compelling evidence that there are indeed huge differences in the credit risk of the loan portfolios of the nation’s largest lenders.In “The Mortgage Credit Crisis,” Stuart Feldstein and his colleagues present the model they developed to identify credit risk and the results of applying that model to “very large samplings” of each lender’s loans. According to the company, the scoring model used was composed of the following metrics: “1) The percentage of existing borrowers with a current combined loan-to-value (CLTV) ratio of more than 95%,
2) The percentage of loans recently produced to subprime borrowers, 3) The percentage of loans recently produced with stated-income, 4) Piggybacks as a percent of all loan transactions in 2005 and 2006, 5) The percentage of loan dollars produced with adjustable rates in 2005 and 2006, and 6) The percentage of loan dollars produced with teaser start-rates, such as pay-option loans.” The results already seem proven by recent history. According to the “Study finds riskiest lenders’ problems are no secret” article currently in our Real Estate News, “…all but three of the 28 companies that scored the highest on six measures of credit risk have already closed their doors or have problems that are well-known.”
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