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Damn the early payment defaults, full steam ahead

Part 3: Subprime tsunami

Editors note: Part three of a four-part series on the crisis in subprime mortgage lending looks at how subprime lenders, having built up the infrastructure needed to originate loans in large volumes, needed to continue making risky loans to remain profitable. (Read Part 1, Part 2 and Part 4.) The Center for Responsible Lending predicts that one in five subprime mortgages originated in the past two years will end up in foreclosure, and that as many as 2.2 million families have already lost their homes or will end up in foreclosure in the next several years. Although the Mortgage Bankers Association and other industry groups say such estimates are alarmist, there's no dispute that many subprime lenders that made money hand-over-fist during the housing boom are now facing a rocky period. Washington Mutual Inc.'s home loans unit, which turned a $1.03 billion profit in 2005, posted $48 million in losses in 2006 after the bank sold nearly all of its subprime mortgage production and scaled b...