Is subprime a sinkhole?

February 12, 2007

HSBC disclosed that it has set aside an additional $1.76 Billion in capital to cover anticipated losses, 20% higher than previous estimates. The bank's expansion into subprime lending in the US has created a rising tide of bad loans to borrowers with the highest risk of default. Behind this strategy was a belief that its risk screening models would limit the chances of losing money.

The new Congress appears ready to shine a brighter light on mortgage lending practices that some characterize as "predatory lending." In spite of rapidly rising home values over the past five years, the presence of historically low interest rates has allowed home ownership rates to expand to record levels. The debate about predatory lending must be reconciled against other regulations that guard against red-lining and equal access to credit.

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