SUB-PRIME LOANS REACH MAIN STREET.

Things have the tendency to settle given enough time to do so. This is the case of the sub-prime borrowers' profile. Back on September 26, in "Sub Prime over-simplification" I warned against the notion that sub prime borrowers are an homogeneous group defined by low credit scores, low income, rather unsophisticated individuals who were taken advantage of by lenders and brokers.


That image has persisted in in the media and even government and elected officials who are supposed to help solve the crisis. They appear not to know who they are going to help. Now comes the time to present to the public the long awaited rescue operation and we "discover" that over 50% of sub prime borrowers are "main street" borrowers.

These are people who do not live in inner cities, who are not low income and who have credit scores over the 620 separation point! They chose sub prime mortgages knowingly hoping that Real Estate values will continue to appreciate and they will be able to refinance. Many of these individuals are able to handle the mortgages even after reset because they have the means and the credit scores that allow them to refinance.

The main difficulty that any rescue plan has is to determine those who deserve assistance and those who do not. The first criterion would be to limit the freeze to principal residences only, next separate those who can afford the new payments from those who cannot, finally tailor the assistance to those who are most vulnerable.

By clearly identifying sub prime borrowers rather than the sub prime sector, it is both fair and easy to address the problems faced. The idea that all sub prime borrowers are identical ignores the reality and it stands in the way of finding viable solutions to the crisis.

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