April 2006
Mortgage finance: Have sub prime lenders missed the boat?
Rising personal bankruptcy levels and an uncertain economic outlook in the UK might suggest that non-conforming and sub-prime mortgage lending is not the smartest business line to jump into at the moment. Try telling that to the succession of new entrants now preparing to try their luck in this sector – one in which veterans might suggest that they are already 10 years too late.
Kensington Mortgages established the blueprint for securitization-funded sub-prime mortgage origination when it was established in 1995. The market has remained the preserve of specialist players, some of which have been sufficiently profitable to be snapped up by investment banks including Lehman Brothers (Southern Pacific Mortgages – SPML – and Preferred Mortgages) and Merrill Lynch (Mortgages plc). Both of these banks are expected to increase their involvement in the sector through further acquisition. Investor acceptance of sub-prime RMBS mortgage risk has meant that the cost of funding for these lenders has dropped significantly in recent years.
Targeted distribution
One new entrant is Basinghall Finance, a joint venture between...
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