Back In The Subprime Game
July 20, 2011
In a recent issue of the Wall Street Journal, Lewis Ranieri—once known as the father of mortgage finance—said it is time for nontraditional lenders to enter the market, bringing with them a return to subprime lending. Ranieri said “the pendulum has swung too far in the other direction,” meaning that lending standards were once too loose and are now too rigid.
The implosion of subprime loans four years ago set off a domino effect that continues to impact global economies today. As financial institutions struggle to regain their footing, lending opportunities have narrowed for all but the most creditworthy applicants. Yet lending is a material source of income that could help financial institutions to recover and thrive.
The collateral damage from this recession varies by state. If your credit union is ready to loosen underwriting standards—even if you stop short of subprime lending—it will be important to strategically plan for all variables involved. The scars earned in the current economy should serve as a sufficient reminder to avoid being burned in the future.
(Sources: Pioneer to Revisit Subprime, WSJ, 6/24/11 and Image by Bart Claeys)
