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indicator of the quantity of new housing supplied to the economy is the residential fixed
investment series from the national income and product accounts. Residential investment
is made up of new construction put in place, expenditures on maintenance and home
improvement, equipment purchased for use in residential structures (e.g., washers and
dryers purchased by landlords and rented out to tenants), and brokerage commissions.”
(Source: “Residential Investment over the Real Estate Cycle” by John Krainer, in the
Federal Reserve Bank of San Francisco’s Economic Letter #2006-15; June 30, 2006).
"Brokers’ commissions…are part of the cost of acquiring a house and, therefore, a capital
expenditure." (Source: "National and Regional Housing Patterns" by Lynn Elaine
Browne in the New England Economic Review, July/August 2000, published by the
Federal Reserve Bank of Boston).
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In essence “subprime” loans refer to mortgages that have a higher risk of default
than prime loans, often because of the borrowers’ credit history. Certain lenders
specialize in subprime loans, which carry higher interest rates reflecting the higher risk.
Certain lenders, typically mortgage banks, may specialize in subprime loans. Banks,
especially smaller community banks, generally do not make subprime loans, although a
few large banking organizations are active through mortgage banking subsidiaries.
According to interagency guidance issued, in 2001, “The term ‘subprime’ refers
to the credit characteristics of individual borrowers. Subprime borrowers typically have
weakened credit histories that include payment delinquencies and possibly more severe
problems such as charge-offs, judgments, and bankruptcies. They may also display
reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other
criteria that may encompass borrowers with incomplete credit histories. Subprime loans
are loans to borrowers displaying one or more of these characteristics at the time of
origination or purchase. Such loans have a higher risk of default than loans to prime
borrowers. Generally, subprime borrowers will display a range of credit risk
characteristics that may include one or more of the following: Two or more 30-day
delinquencies in the last 12 months, or one or more 60-day delinquencies in the last 24
months; Judgment, foreclosure, repossession, or charge-off in the prior 24 months;
Bankruptcy in the last 5 years; Relatively high default probability as evidenced by, for
example, a credit bureau risk score (FICO) of 660 or below (depending on the
product/collateral), or other bureau or proprietary scores with an equivalent default
probability likelihood; and/or Debt service-to-income ratio of 50 percent or greater, or
otherwise limited ability to cover family living expenses after deducting total monthly
debt-service requirements from monthly income.”
5
The amount outstanding of revolving, open-ended loans secured by 1-4 family
residential properties and extended under lines of credit.
6
Closed-end loans secured by junior (i.e., other than first) liens on 1-4 family
residential properties.
7
Delinquencies on first mortgage loans and junior liens were not reported
separately by banks until 2002.