Looking for a career in a dynamic and exciting industry? It might be a great time to take a look at becoming a subprime mortgage lender. (Those in search of career stability need not apply.)
If you already know what subprime lending is, skip this paragraph. If you don’t really understand it, here’s the skinny: Subprime lenders offer mortgages (or auto loans, credit cards, etc.) to those among us who don’t have the most pristine of credit records. Subprime borrowers typically pay more than they would if they were “prime” – higher interest rates, with more creative loan packaging, etc.
The business has been booming for the past five years or so, and is even credited with boosting what had been a declining home ownership rate over the past decade by helping those with poor credit obtain mortgages. Subprime mortgages are said to account for 13% of outstanding mortgages today.
But with the overall housing market slowing down, marketplace competition increasing, margins narrowing, and investors calling in their IOUs in the form of buybacks, well, let’s just say the squeeze is suddenly on.
In just a few short months, the industry has been turned on its head. Companies have been pared down (ACC Capital’s Ameriquest Mortgage, Option One Mortgage, and Secured Funding), shuttered (Ownit Mortgage Solutions, Sebring Capital, and NetBank’s Meritage Mortgage unit), sold (Aames Investment, bought by Accredited Home Lenders; the subprime business of Champion Mortgage; Chapel Funding, acquired by Deutsche Bank; First NLC Financial Services; and Saxon Capital, acquired by Morgan Stanley), placed under agreement for sale (First Franklin Financial and the subprime wholesale business of ECC Capital), and said to be headed for sale (Ameriquest Mortgage and Option One Mortgage again).
In all the seeming insanity surrounding the industry in recent months, some level-headed analysts have made it a point to mention that the mortgage business in general and the subprime business in particular are historically cyclical.
I’m reminded of the old saying that one never forgets how to ride a bicycle. Let’s just hope some of these “cycle riders” can keep pedaling without getting skinned up too badly.
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