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Subprime Servicing Market Now Tops $1 Trillion

By the time June ends, the nation's consumers will owe lenders more than $1 trillion on their subprime mortgages, according to figures compiled by this newspaper.

At the end of March, subprime receivables (servicing rights) accounted for 12.16% of all residential loans being serviced in the U.S., compared to 8.03% at the end of 2002. (The 12.16% figure is an all-time high.)

In the first quarter, mortgage bankers funded a near record $169 billion in subprime loans and at the end of March serviced $951 billion in these nonconforming credits.

Based on first-quarter production, chances are the industry has already cracked the $1 trillion mark.

Subprime and nonprime loans - including the production of interest-only and payment-option loans - continue to be the most profitable niches in mortgage banking but in recent months competition has reduced margins on these products. Also hurting the sector is the narrowing spread between short- and long-term rates.

However, delinquency rates on subprime loans continue to be somewhat benign. According to figures compiled by the Quarterly Data Report, the past-due rate on subprime mortgages was 8.62% at the end of March. By comparison, the delinquency rate on FHA loans was 13.17% and 7.59% on VA product.

A new report issued by Friedman, Billings, Ramsey & Co. notes that the "serious delinquency" rate on securities backed by subprime ARMs can vary widely by issuer and origination year.

The FBR report notes that pools issued by Equity One Inc., Marlton, N.J., experienced "persistently high" delinquency rates for the 2001 to 2003 origination years.

Equity One 2001 pools had a delinquency rate of 27.08% compared to an overall industry average of 16.99%.

Accredited Home Lenders pools, on the other hand, have performed well with delinquency rates considerably lower than the industry average. Accredited is based in San Diego.

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