Subprime is Back, Baby! Never Mind...

This morning The New York Times reported that our nation's banks are “back to lending to risky borrowers. As banks look to make up for fee income barred by new regulations, they've gone back to offering loans and credit cards to borrowers with bad credit.” If you read the rest of the story you'll quickly learn that most of what the report is talking about is credit cards – not home mortgages. I'm pretty confident when I say this: no major bank in this big nation of ours will ever make another subprime loan with less than 40% down and a mile high of paperwork. Those days are over for good. Of course, I continue to believe that there is a dire need in this country for nonbank subprime lenders that operated similar to the way Aames Financial, Associates First Capital Corp., and The Money Store ran their businesses in the 1960s and 1970s. These were private firms that made home equity loans, held the paper in portfolio, and made certain they knew their customers. Don't get me wrong. These firms were not exactly boy scouts when it came to some of their lending practices, but at least they were willing to extend loans to consumers with damaged credit. Their delinquencies were low – as was their market share but they provided a valuable service and made a decent living. When might we see that again?