A researcher for the nation's leading subprime trade group has confirmed what lenders have been talking about for months -- that profit margins in the niche are falling.Discussing his new study on subprime lending in New Jersey, Professor Richard DeMong of the University of Virginia noted that margins are "clearly" falling, saying one reason for the decline is that more lenders are flooding into the niche. At a Sept. 15 legislative conference sponsored by the National Home Equity Mortgage Association, Mr. DeMong said New Jersey's predatory-lending law (first enacted in 2002) has caused subprime lending to drop "significantly" in the state -- particularly first liens. The study, based on first-quarter results and sponsored by NHEMA, confirms the findings of two previous studies on how the Home Ownership Security Act reduced subprime lending in the state. NHEMA attorney Wright Andrews conceded that the group may have a credibility problem in Washington because even though "we keep saying the sky is falling," loan volumes keep going up. NHEMA is trying to combat this perception and believes its members (particularly national lenders) are "cross-subsidizing" difficult markets by charging higher rates in states where nonconforming loan laws are less onerous.

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