Late payments on subprime loans have surged, the Wall Street Journal reported on its Web site on Tuesday, and while economists don’t expect major harm, a continued rise could hurt investors in mortgage-backed securities.
Subprime mortgages are loans made to borrowers who are considered to be higher credit risks because of past payment problems, high debt relative to income, or other factors, it said.
Lenders typically charge them higher interest rates — as much as four percentage points more than more credit-worthy borrowers pay — one reason subprime mortgages are among the most profitable segments of the industry, the paper added.
Subprime mortgage originations climbed to $625 billion in 2005 from $120 billion in 2001, the WSJ said, citing Inside Mortgage Finance, a trade publication.
Based on current performance, 2006 is on track to be one of the worst ever for subprime loans, according to UBS AG, it said. It cited the bank saying that roughly 80,000 subprime borrowers who took out mortgages packaged into securities this year are behind on their payments.