Industry News

The subprime tsunami

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Editor's note: The following excerpt from the Inman News Blog examines aspects of the subprime mortgage market, what fueled its growth, and what could be in store for this segment, which has grown at a rapid pace over the last few years. Inman News welcomes your comments on what is happening in the subprime market. Click here to join a discussion. The Subprime Tsunami Here is the scenario: China is creating wealth at record levels. Its central bank has invested more than $1 trillion in U.S. Treasuries and mortgaged-back securities. In fact, it is the largest investor in MBSs. The fastest-growing piece of MBSs has been subprime loans. Years ago, Wall Street figured out it could make a mint off mortgages and began packaging them as fast as the Chinese were building high-rises in Shanghai. But the supply was constrained, so the Street urged originators to originate more home loans, as they had plenty of investors, including deep pockets from China (and Japan as well). Then al...