"There's going to need to be a large collection effort," Weber said. "Despite some of the moves on the state and federal side, there are going to be a lot of defaults. It will require a lot of manpower to make collections."
Much remains unclear as government officials start to look more deeply at the problem, Weber writes in an Aite Group "impact report" today. Regulators and legislators will act on both state and federal levels and there will likely be additional guidance on proper disclosures of subprime loan terms and underwriting, notes Weber.
Senate Banking Committee Chairman Christopher Dodd met with Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke last week to discuss possible solutions to the crisis. Afterward, Dodd indicated that new legislation to address abusive lending practices was on hold until the Fed published its new rules on abusive lending.
Weber said that lenders only marginally committed to the subprime loan market could decide to leave the market altogether because the risk/reward equation will be seriously altered by new oversight.
Lenders will continue to exit the market, while those that remain will rethink their approaches to regain the confidence of consumers, regulators, and investors, according to Weber. However, opportunities will arise for lenders committed to the subprime market, particularly those that can get beyond "by the numbers" underwriting. Local or regional institutions that are better connected to their clients may be more successful than the national players, said Weber, but they will need smart staff, and they will need to supply them with the right tools.
The number of self-employed individuals continues to grow, Weber pointed out, and these current and potential borrowers may be good risks, even if their credit scores aren't in the prime category. "They write everything off, so their income isn't as high," Weber said.
She said that the fallout from bad loans is nowhere near an end. "The question now is when the fallout from these practices will dissipate. The unfortunate answer is that things may still get worse before they get better."
She added that it would be in lenders' best interest to try to rewrite the bad debt, perhaps adding years to the loan terms in order to try to collect as much of the loans as possible. She also expects government sponsored entities Freddie Mac and Fannie Mae to continue their recent increased activity in the Alt-A market.
Much remains unclear as government officials start to look more deeply at the problem, Weber writes in an Aite Group "impact report" today. Regulators and legislators will act on both state and federal levels and there will likely be additional guidance on proper disclosures of subprime loan terms and underwriting, notes Weber.
Senate Banking Committee Chairman Christopher Dodd met with Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke last week to discuss possible solutions to the crisis. Afterward, Dodd indicated that new legislation to address abusive lending practices was on hold until the Fed published its new rules on abusive lending.
Weber said that lenders only marginally committed to the subprime loan market could decide to leave the market altogether because the risk/reward equation will be seriously altered by new oversight.
Lenders will continue to exit the market, while those that remain will rethink their approaches to regain the confidence of consumers, regulators, and investors, according to Weber. However, opportunities will arise for lenders committed to the subprime market, particularly those that can get beyond "by the numbers" underwriting. Local or regional institutions that are better connected to their clients may be more successful than the national players, said Weber, but they will need smart staff, and they will need to supply them with the right tools.
The number of self-employed individuals continues to grow, Weber pointed out, and these current and potential borrowers may be good risks, even if their credit scores aren't in the prime category. "They write everything off, so their income isn't as high," Weber said.
She said that the fallout from bad loans is nowhere near an end. "The question now is when the fallout from these practices will dissipate. The unfortunate answer is that things may still get worse before they get better."
She added that it would be in lenders' best interest to try to rewrite the bad debt, perhaps adding years to the loan terms in order to try to collect as much of the loans as possible. She also expects government sponsored entities Freddie Mac and Fannie Mae to continue their recent increased activity in the Alt-A market.
by Phil Britt, www.insideARM.com