We are all Sub-Prime Now

We are all Sub-Prime Now November 26, 2007

So who are “subprime” borrowers? Right now, they are simply those borrowers whose bridges all burnt: can’t refinance, can’t sell, can’t cut the budget any further to stay in place. A large chunk of them are currently in loan programs that were designated “subprime.” Bunches more are in “Alt-A” and “prime.” …

My new motto—“we are all subprime now”—is an attempt to keep reminding the attention-impaired (that would include but isn’t limited to reporters and politicians) that demonizing “subprime people” isn’t going to prevent you from going there yourself. The fact is that huge numbers of people who have “prime” mortgage loans couldn’t refi or sell right now to—literally, for some of the uninsured—save their lives. They may well still be making payments on the mortgage, but they’re rapidly approaching upside-down if they’re not there yet, they’ve spent the proceeds of the previous cash-outs that kept up the lifestyle or just kept life together, and if the truth were known about credit card balances, their current FICOs probably aren’t the envy of the neighborhood either. They are, in short, subprime. They just don’t recognize themselves in the stereotype of the deadbeat serial bankruptcy filer or the undocumented immigrant or the waitress in the McMansion or whatever extreme case you can dredge up and label “typical” for subprime. They are, increasingly, “us.”

Tanta, Calculated Risk

Those following the housing crisis are well aware of the subprime issues.  One of the issues from that debate is the co-mingling of low income and sub-prime.  While high income is not an impediment to solving most financial problems, it doesn’t really touch on the finer points of the debate.  I remember one out of business sub-prime lender describing in the New York Times the people he helped were folks making under $100,000 with less than $100,000 in assets.  I encourage everyone to read Tanta’s piece to get a better idea of what’s happening on the ground without the usual cliches.

On a side note, the reason she is blogging is that she is on leave for health reasons.  Prayers for her treatment and recovery I’m sure would be appreciated.  As a biographical note, she has extensive banking experience, and Calculated Risk is one of the most respected financial blogs.

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