Big banks have found a new way to stay in the subprime lending business

Big banks have found a new way to stay in the subprime lending business
  • Despite tough new regulations aimed at lowering risk for banks, Wall Street continues to find a way to finance subprime loans.
  • Instead of direct lending, big institutions like Wells Fargo and Citigroup loan money to nonbank institutions — shadow banks — who then deal with higher-risk clients.
  • Banks say this way helps lower their exposure.
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What The Climbing Debt Defaults Really Mean For The Economy

What The Climbing Debt Defaults Really Mean For The Economy

By many measures, the economy looks strong.

The stock market — despite a fairly steepWh correction a week ago — is still well ahead of where it was a year ago and is trending up. Unemployment is at historic lows, wages are rising given the tight labor market and consumer spending has been keeping pace.

Dig in a bit deeper, however, and the numbers become a bit less confidence-inspiring, since the bulk of that consumer spending is being done on credit, as household debt is skyrocketing.

That by itself isn’t worrisome news: Credit can be useful leverage if used correctly. But the data indicates that for an increasing number of users, debt is not being managed correctly. Late payments and out-and-out defaults and charge-offs are on the rise across a few lending segments.

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A big deal in nonprime mortgages proves leery investors are finally hungry again

A big deal in nonprime mortgages proves leery investors are finally hungry again

Subprime Securities aren't coming. They are calling them Nonprime loans now. And they are bundling them back into securities again. Combine that with the credit agencies no longer looking at Tax Judgements and Fannie Mae loosing up Debt to Income Ratios, more nonprime people will qualify for loans. That's good news for me because we'll have more non-performing notes out there. For the rest of you folks, the good news is that we are starting small, so it might be a while before there is a large impact.

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