The "sub-prime" mortgage sector (high-risk lending offset by higher interest rates) has been under some scrutiny in the UK, but here's a chance to see what happens to it when economic conditions take a turn for the worse. In America:

Nearly a fifth of consumers with bad credit who borrowed money to buy a house in the past two years will default on their mortgages and lose their homes, an industry survey projects.

The survey's by a non-profit organisation which researches "predatory lending tactics". This is how it works in the States:

Subprime mortgage lenders have little incentive to ensure the creditworthiness of borrowers, CRL said. Lenders pool home loans and sell them as mortgage-backed bonds, placing the risk of default with investors in the secondary market. Therefore, lenders' only incentive is to issue as many loans as possible.

I don't know whether this is how it works in the UK, too... or whether simply the combination of higher than normal interest rates and the opportunity to repossess homes in a competitive market is enough to make this sector attractive to lenders. I'll make some enquiries... and if you know, drop me a line.

Wednesday afternoon linkage - 200 lenders in trouble [November 29, 2006]
Tuesday afternoon linkage - when the music stop [November 28, 2006]
Mortgage broker world - where "sub-prime" includes "heavy adverse" [June 28, 2006]