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This post on the Calculated Risk blog is pretty fascinating. It’s taken from the Federal Deposit Insurance Coprporation – FDIC – Summer Outlook 2006 and it has some interesting things to say about the spreading use of high-risk mortgages and how the banking industry is responding.

The article reads:

Widespread marketing of nontraditional products could be raising the risk profile of some mortgage lenders and consumers. Growing unease about risk taking by lenders and consumers recently led bank regulators to propose new supervisory guidelines on risks of, and disclosures for, various mortgage products.

It goes on to say that nontraditional loans have gotten more and more popular nationwide. No surprise there, but here’s the scary stuff:

Aided by new computer models and an easing in lending standards, many lenders have accommodated this demand by expanding the variety of nontraditional mortgage products offered while also extending loans to borrowers with less-than stellar credit histories. As a result, by 2005, nonprime lending, comprised of subprime and Alt-A (low- or nodocumentation) (sic) loans, accounted for about 33 percent of all mortgage loan originations, up from almost 11 percent in 2003.

Worried yet?

In California, the lion’s share of mortgages issued last year are these nontraditional loans, and in San Diego, as I’ll keep shouting ’til I’m blue in the face, those loans account for more than 70 percent of last year’s home loans.

That’s way more than most other states and, according to a chart in the FDIC’s report, California’s leading the way in the use of these loans among states. Only Nevada even comes close to California in the use of these nontraditional mortgages.

If you’re interested, or just have a lot of spare time, check out the full report here.


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