Subprime origination migrates to the net

Six percent of subprime loans were originated directly over the internet in the first half of 2007, according to a new survey of subprime lenders by the Mortgage Bankers Association.

If that doesn't sound terribly impressive, consider that's a 50 percent increase from the latter half of 2006, when only 4 percent of subprime loans (by total dollar volume) were originated directly over the Internet.

It's even more impressive when you consider that the average loan amount originated over the Internet ($135,640) was much smaller than those originated by mortgage brokers ($195,200) or retail lenders like banks ($180,732). In terms of raw number of loans, the Internet accounted for 8 percent of subprime loan originations in the first half of 2007, up from 5 percent the previous six months.

So who's losing market share at the expense of the Internet? Would you be surprised to learn mortgage brokers? Mortgage brokers, who have been taking heat for supposedly steering gullible borrowers into costly loans in order to pocket yield spread premiums, saw their market share of subprime dollar volume drop from 72 percent in the latter half of 2006 to 58 percent in the first six months of 2007.

But retail lenders look to have been the greatest beneficiaries of the credit crunch, growing their market share from 23 percent to 36 percent during the same period. While it's perhaps understandable that retail lenders like banks are picking up market share-- they still have money to lend, and a certain amount of street cred -- it's interesting to see Internet direct lenders benefitting as well, considering that many don't enjoy a squeaky clean image. Could it be they're just easier for people who would rather surf the Internet then pick up the telephone to find?

The survey was taken before the secondary markets for subprime and alt-A loans fell apart in August, so it will be interesting to see what's happened since then.

Some other trends from first half of 2007 are pretty much as expected:

--a growing percentage of subprime loans in the first half of 2007 (64 percent) were refis, not purchase loans. That compares to refis making up 55 percent of subprime loans in latter half of 2006.

--the average subprime loan amount is shrinking -- $185,109 in first half of '07, down 8.4 percent from previous six months. The difference for the average second loans was even more pronounced -- $15,809, compared to $35,506.

--75 percent of subprime loans were ARMs in second half of 2006. Only 69 percent in following six months.

Some of the numbers I've thrown out here are in the press release. The actual survey has more details, including breakdowns by FICO score and LTV.

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