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Subprime Datapoint Of The Day

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by Yves Smith and Felix Salmon
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Oct 24 2007 12:00am EDT

Subprime Datapoint of the Day

Ron Popeil would be proud. "What am I asking for this subprime loan? Am I asking 60 cents on the dollar? No! Am I asking 30 cents on the dollar? No! I'm not even asking 10 cents! All I ask is 6 – yes, folks, you heard that right – 6 cents on the dollar! And if you make me an offer today, I might even accept just 3 cents!"

According to Janet Tavakoli, via Diana Olick, there are indeed subprime loans selling for 3-6 cents on the dollar. "My average recovery rate assumption of 30% is also currently unattainable," she says.

Now I don't know how widespread these deals are, or whether these loans are all first lien. But at these kind of rates, it starts making a lot of sense for property speculators, and not just financial players, to start buying loans rather than houses. I suspect that there's a lot of money to be made in distressed loan portfolios if you're comfortable with a buy-and-hold strategy and are happy to end up owning and renting property (maybe even renting it to the present owner) rather than trying to sell it at firesale prices.

(HT: Yves Smith)

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