Analysts: Subprime Credit Crunch No Threat
Two analysts told CNBC's Dylan Ratigan not to fear the credit crunch that may follow problems in the subprime mortgage lending market. Just today, home lender Novastar Financial said it lost more than $14 million in the fourth quarter ahead of expected mortgage defaults. And Wells Fargo is axing some 320 subprime jobs after tightening its lending policies.
Thomas Higgins, chief economist at Payden & Rygel, maintained that the tightening of subprime lending simply "won't spread to overall" mortgage lending. On "Closing Bell," he noted that the higher-risk loans are "a small portion" of the mortgage market -- 15% -- and that the prime majority of the borrowers are "doing just fine."
Scott Wren, A.G. Edwards' senior equity strategist, agreed, said that "you can't have record home ownership" without lenders taking risks -- such as furnishing loans to the people with worse credit histories. He believes the risk is "contained, for now." Should unemployment rise well over 5%, he says, the mortgage sector could face possible troubles -- but he sees joblessness only "ticking up" within safe margins. Wren sees a labor market that is "good, not great," and commented that, "they call it 'subprime' for a reason": people with worse credit get hurt.
(Recasts earlier version of this story.)