Spotlight on Financial Services

"A recent study conducted by the mortgage industry newsletter Inside B &C Lending found evidence that subprime mortgage borrowers do receive loan pricing that reflects their underlying credit risk."


Michael E. Staten		Robert W. Johnson

JUNE 2004

The Expansion of the
Subprime Mortgage Lending Market

In remarks before the Financial Services Roundtable's Annual Housing Policy Meeting last month, Federal Reserve Board Governor Edward M. Gramlich outlined the benefits and costs of subprime mortgage lending as well as the challenges facing the industry. Governor Gramlich identified the evolution and growth of subprime mortgage lending as "one of the key financial developments of the 1990s."

Job Growth Raises Inflation Fears

Strong employment growth statistics for May indicate vigorous growth in the U.S economy. Over 248,000 jobs were created in May, more than many analysts had forecast.

U.S. Court Data Show Bankruptcy Growth Has Slowed

Confirming the trends we've been following through private bankruptcy tracking services, the Administrative Office of the U.S. Courts announced that personal bankruptcy filings in the first quarter of 2004 were down about 1.4% from the same period in 2003.

Credit Cards

Experian, the large consumer reporting agency that maintains credit report files on 200 million U.S. consumers, recently released statistics on credit card usage. Some of the highlights are listed.

Turnaround in Issuers Use of Direct Mail

Market research firm Synovate reports in its latest Mail Monitor^® direct mail tracking service that U.S. households received 21 percent more credit card offers in the first quarter of 2004 as compared to the fourth quarter of 2003.

Fair Isaac Scoring Product to Combat ID Theft

New applications for credit these days present creditors with a new assessment challenge: are the applicants really who they say they are? To help prevent ID theft, Fair Isaac Corp. is developing a scoring system that pools the application experience of corporate subscribers in order to screen new applications against a database of prior applications.

Prepayment Risk Scores

A new product from Applied Financial Technology and McDash Analytics will roll out this month that will utilize statistical scoring to estimate prepayment risk on mortgage loans.

GMAC Offers Rewards Card Tied to Mortgage

In a new twist on the popular "rewards card" concept, GMAC Mortgage will roll out a new credit card to holders of mortgage loans and home equity lines of credit serviced by the company.... The card will give borrowers an automatic $25 credit toward their mortgage principal balance for each $1,000 they spend on the card.

Private Housing Starts

Trends in housing starts are a useful indicator of the state of the economy and the outlook for the future. Consumers invest in new homes when they have a positive outlook on the economy.

Rising Mortgage Rates

There is a cloud over the future of housing starts: rising mortgage interest rates. The accompanying chart, prepared by HSH Associates, captures these trends.

Risk-Based Pricing on Subprime Mortgages

One of the criticisms frequently heard about the subprime mortgage industry is that "predatory" lenders take advantage of less sophisticated borrowers.... A recent study conducted by the mortgage industry newsletter Inside B&C Lending found evidence that subprime mortgage borrowers do receive loan pricing that reflects their underlying credit risk.

The Expansion of the Subprime
Mortgage Lending Market

Discriminatory Lending

The Justice Department has reached a $3.2 million dollar settlement with the Old Kent Bank. In his excellent article in the Wall Street Journal, Gary Fields explains the basis for this action by the Justice Department.

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