Subprime Seen as Commoditized

Subprime lending has become a "commoditized" business with reduced margins and companies have to reduce their cost structure to survive, according to Steven Nadon, the president of H&R Block Mortgage Co.The days of 150 basis point or 200 bp operating margins are gone forever. "Everyone is going to have to come to grips with that if they are going to have any chance of long-term survival," he told the Mortgage Bankers Association's conference in Washington. The Irvine, Calif.-based subprime lender is in the process of reviewing its operations to reduce costs and it is planning to outsource some origination steps, such as data input and basic underwriting, to India. Operating margins have declined from 119 basis points in 2004 to 52 bp in 2005 according to a MBA survey of 18 subprime lenders. Most of that decline is due to a sharp decline in gain on sale, which has dropped by 175 bp over the past three years, MBA director Marina Walsh told the nonprime conference.