Industry News

Fed report: Subprime mortgage continues to function

Alt-A, subprime MBS retreating from records

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Despite dramatic rise delinquencies and foreclosures, subprime mortgage lending continues to function and new loans are being made, Federal Reserve analysts said in their biannual monetary policy report to Congress. Credit has tightened as investors in subprime mortgage-backed securities (MBS) have scrutinized the underlying loans more carefully, forcing lenders to tighten underwriting standards, the report said. Not only have underwriting standards gotten tougher, but subprime borrowers are paying more for loans, the report noted. Credit spreads on the lower-rated tranches of new subprime securitizations have "increased sharply" this year, and issuance of subprime MBS "has moderated from its vigorous pace of the past couple of years." Click here to see a graph of the gross issuance of Alt-A and subprime mortgage-backed securities between 2002 and 2007. The annual rate of gross issuance of MBS backed by subprime and Alt-A mortgage loans peaked in the first half of 2006 at about $70 bi...