We’re all subprime now

Van Nuys foreclosure activity

From Tanta at Calculated Risk, in a long post about how, yes, the poor and people of color generally got stuck with mortgages with higher interest and more onerous terms that did higher income Anglos. But, and this is a very big but, plenty of those high income Anglos also got such terms. So maybe the problem isn’t just subprime being ghettoized to scapegoat the poor and people of color, but that people of all income levels got shafted by high interest rates.

The possibility also seems to have escaped them that maybe subprime is, at the end of the day, just “high rate lending.” If that’s the only constant we can find in that category called “subprime”–if income, credit history, property location and price in that bucket is apparently rather random–then you begin to suspect that “subprime” is “loans to naive or desperate borrowers,” not this ballyhooed “risk based priced” stuff of recent legend.

The bottom line is that “high-risk” lending was everywhere in the boom years. Of course there is a desire to collapse it all into the easy category of “subprime.” And there has for a long time been a lot of political pressure to keep the association of “subprime” and “urban minorities” in place, because it has functioned as a good excuse for the subprime lenders (they “help” the poor and minorities, remember?).

If this ain’t “just a subprime problem,” then an entire debt-based economy in which even the middle and upper middle class cannot afford homes given RE inflation and wage stagnation is suddenly in question. The last thing certain vested interests want to hear is that, basically, “we are all subprime now.”

One of the comments to Tanta’s post sums it up nicely.

What we’re seeing is not the result of a “subprime problem” but instead a “credit underwriting standards problem” — that is, high risk loans became de rigeuer not primarily because of reaching into lower social strata but because of laxity in originator risk management across all social strata? and by extension, across all loan types relative to earlier standards?

The graphic is from The area is West Van Nuys in L.A. – middle class tract homes built in the 50’s. It’s where we lived until moving in Jan. of this year. To my knowledge there was little or no foreclosure activity going on when we moved. Nine months later, it’s everywhere. It appears there’s a lot of hurting going on there now.

  • DJ

    Wow, a $600K home? That’s cheap! Seriously, in the Culver City condo complex we moved out of 3 years ago (built in the 1970s, termite-ridden, and with a nearly bankrupt HOA), a 2-bed 2-bath condo now sells for a cool half million. Why? Because you can’t live anywhere on the West Side for less. Fixer-upper homes in Westchester, under the flight path of the jumbo jets, start at $750K. These $500K condos are entry-level housing!

    One website says LA’s median home price is $464K, but I don’t know where those lower-priced homes are, maybe in the projects. The payments on the median home (at 6.5%) would be over $35K each year. Compare that with LA’s median income of $36K. Is it any wonder so many homes are on sub-prime?

  • The house we sold for Jan. would now go for 15-20% less, according to our broker there who knows the area well.

    Your old condo may be dropping in price now too.

    $35k a year in payments translates to about $50k before taxes, so if one is are sane and allots no more than 30% for housing costs, then they need to be making at least 150k to afford that condo.

  • DJ

    “Your old condo may be dropping in price now too.”

    Yes, it has– from a former ridiculous price of almost double what we sold for in 2004. But my ex-sister-in-law is currently trying to buy one– and $500K is the going rate.

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