The Rise and Fall of the Subprime Mortgage

by: Mark J. Perry

The chart above shows the subprime share of mortgage originations from 2001 to 2007, using data from Harvard's "2008 State of the Nation's Housing" study, available here.

1. From 2004-2006 the subprime share of mortgage originations was around 20%, almost triple the 7-8% share from 2001-2003. What a rise!

2. By the end of fourth quarter 2007, the subprime share dropped to only 3.1%, lower even than the 7-8% average during the 2001-2003 period. What a fall!

3. That 20% subprime mortgage share from 2004-2006 was obviously the cause of the subprime crisis. Although that huge amount of subprime mortgage activity from 2004-2006 might create problems for a few more years, it's also the case that a significant correction in subprime lending has taken place - that market has almost completely dried up. Looking forward, this correction suggests a future mortgage and housing market that will be much better than today's.