Booyah Breakdown: Subprime Time
Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry. -- Lord Polonius, in Shakespeare's Hamlet.
Homeownership is close to 70% these days. You can thank historically low interest rates and the president's push to have every American own a home. But that ownership translates into more than $9 trillion in outstanding mortgage debt these days.
Of that amount, about 20% is in subprime loans. And unless you've been under a rock, you've heard about the looming explosion of the subprime market.
Cramer has been talking about it daily. And while he's pretty bearish on the whole mortgage sector, he's "cautious" about the subprime arena. "I am worried. But I am not scared and I am not panicking," he said in a recent column.So what exactly is this explosive subprime industry that can single-handedly pull the economy into the toilet? The Booyah Breakdown is going to try to dissect that dilemma today. We'll analyze the different players and try to understand the potential fallout.
The Borrowers"Subprime is a mortgage-industry term referring to folks with less than stellar credit," explains Keith Gumbinger, vice president of HSH Associates of Pompton Plains, N.J., which tracks a variety of loan products. A credit score of 700 or higher is considered very good. That means you pay your bills on time and don't have any bankruptcies under your belt. But if you have missed payments, filed for bankruptcy or have delinquencies in your past, your credit score will most likely fall to anywhere from 500 to 600.
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