Sub-prime Meltdown - Visual Tool

I think its fairly understood at this point that there has been a "meltdown" in the sub-prime lending world for home loans. The degree to which it would spill over into normal housing markets and prime home financing has been the subject of debate. I don't know why it wouldn't spill over, as the problem in the sub-prime lending was a spill-over of problems in the prime lending arena in the first place. Namely, money got too cheap and easy to get.

But take a look at this chart. Another great one from The Big Picture. It shows the delinquency rate for various recent 'vintages' of non-prime paper. 2006 and early 07 is being regarded as the worst 'vintage' because it was underwritten and funded at the peak of the lending mania.

14% of those loans are delinquent 20-24 months after origination, compared to a 3-7% delinquency rate on vintages recent previous years. 14 percent!!

It stands to reason that the Q307 paper and onward will be some of the best quality paper on the secondary market going forward, as these borrowers were scrutinized by the currently tough underwriting guidelines. I'll discuss this more in future posts...