Digging for subprime gold

A foreclosure sign hangs in front of a home in Miami.

TEXT OF INTERVIEW

SCOTT JAGOW: Investors have been bailing big-time on the subprime mortgage market. But investment bank Goldman Sachs is talking about going deeper into the subprime business. We're joined now by Will Andrews of BusinessWeek.com. Will, what are they doing?

WILL ANDREWS: The reason that Goldman has been so successful over time has been their ability to recognize opportunities that others haven't seen. You know, Goldman probably has been assessing the risks in this market and you know quite frankly I think they may be able to get some of these assets at fire-sale prices based on the action that we've seen in the market and people basically marking down the shares either of these lenders or the values of these loan portfolios.

JAGOW: The troubles that we've been hearing concerning the subprime market have really taken a toll on Wall Street and on markets overseas. Are investors overreacting to this?

ANDREWS: There's some element probably of overreaction. I think you do have to keep a sense of proportion about the size of the subprime market. Now granted there is a real concern obviously about the health of the U.S. housing sector and consumers' abilities to make basically timely repayments on their mortgages. That said, if you look at history, in the 1980s foreclosures and delinquencies were actually at higher levels than they are now. I think in terms of history this particular wave of foreclosures is not the worst that we've ever seen.

JAGOW: OK well when we look at it in the big picture and all the things that are happening right now, what should we be taking away from this and learning from this?

ANDREWS: The first thing is that during boom times, lenders will definitely fall all over themselves to produce loans and there probably could have been more oversight about the quality and types of loans that were being written during this. You know, basically if you passed the mirror test they would give you a $200,000 mortgage. I think there is a need to reexamine lending standards and in fact, regrettably, after the horse has left the barn there is some tightening going on both by companies and regulators are also issuing standards that recommend tighter controls on these kinds of loans.

JAGOW: OK Will thank you.

ANDREWS: Sure thing.

JAGOW: Will Andrews is editor of the Investing Channel for BusinessWeek.com.

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