Future of Subprime - A Primer
I frequently read a handful of industry discussion boards, and post on some of them from time to time, as some of you know. I see this particular question being asked and discussed often, so I thought I would take a stab at it this morning for you.
Based upon what I read, the conventional wisdom seems to be that it will 'come back' (like it was the last several years) and that it will probably take a dozen years or so to do that. That 'conventional wisdom' I speak about, looks like it's coming from people who joined our industry during the last industry cycle Aug '98 to Dec '05, so they lack a clear picture in the broader context of the business, my view.
I want to give you some of it's history, so you'll have a well-rounded view of the horizon. Subprime, formerly called B/C paper and/or non-conforming, began in 1914 (with my initial industry employer and others). As an eye witness, I know it was a around in 1966 when I started as a twenty-something LO. Fannie Mae and her snot-nosed step half-brother Freddie Mac (labeled 'conforming') began in 1972 and BTW, I went to their baby showers, etc. and drank a lot of beer!
Since then, Fannie (FNMA) & Freddie (FHLMC) - let's call them by the initials they like to use these days "GSE's" - during their history have stumbled badly a couple of times and ONLY because they are Government Sponsored Enterprises, they haven't exploded all over everybody like 'non-conforming' has a couple of times (but been real close).
The way in which 'non-conforming' was done - 'originate to distribute' - during the last 20 years (not before that), and especially the reckless way it was handled the last decade, is at the core of what it's going through, and what you all have seen recently.
It will not be back, like it was during the '98-'05 period (ever again), but IS back (if you thought it left) right now ... only YOU don't know who the players are, and who the big-shot players are going to be (nor do I) ... because they are starting/building/growing/developing, etc. right as we speak. It's my sense they will operate nearly as they did during the period immediately prior to the start of the last cycle in August '98.
BTW, you can take this assesment to the Bank ... and you're more than welcome to quote me!
Based upon what I read, the conventional wisdom seems to be that it will 'come back' (like it was the last several years) and that it will probably take a dozen years or so to do that. That 'conventional wisdom' I speak about, looks like it's coming from people who joined our industry during the last industry cycle Aug '98 to Dec '05, so they lack a clear picture in the broader context of the business, my view.
I want to give you some of it's history, so you'll have a well-rounded view of the horizon. Subprime, formerly called B/C paper and/or non-conforming, began in 1914 (with my initial industry employer and others). As an eye witness, I know it was a around in 1966 when I started as a twenty-something LO. Fannie Mae and her snot-nosed step half-brother Freddie Mac (labeled 'conforming') began in 1972 and BTW, I went to their baby showers, etc. and drank a lot of beer!
Since then, Fannie (FNMA) & Freddie (FHLMC) - let's call them by the initials they like to use these days "GSE's" - during their history have stumbled badly a couple of times and ONLY because they are Government Sponsored Enterprises, they haven't exploded all over everybody like 'non-conforming' has a couple of times (but been real close).
The way in which 'non-conforming' was done - 'originate to distribute' - during the last 20 years (not before that), and especially the reckless way it was handled the last decade, is at the core of what it's going through, and what you all have seen recently.
It will not be back, like it was during the '98-'05 period (ever again), but IS back (if you thought it left) right now ... only YOU don't know who the players are, and who the big-shot players are going to be (nor do I) ... because they are starting/building/growing/developing, etc. right as we speak. It's my sense they will operate nearly as they did during the period immediately prior to the start of the last cycle in August '98.
BTW, you can take this assesment to the Bank ... and you're more than welcome to quote me!
posted by Secret! at 7:26 AM
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