07/11/2009

Why High Delinquency rates?

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A plausible explanation for the high delinquency rates experienced by some banks.
The industry standard is typically half-bank, half broker-originated
loans, but the bank Jiang studied was 90 percent broker-based and 10
percent bank-based — explaining why the delinquency rates for the bank
in Jiang’s study were so high above the industry norm.

Then why did these banks use brokers?
“These banks all had more than 50 percent annual growth for three or four years,” Jiang says. “You cannot build branch staff that quickly; the only way banks could achieve that growth rate was to use the mortgage broker channel to hone in on marginal borrowers.

More details here.
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