Could Subprime Delinquencies Reach 30 Percent?

Bloomberg recently ran a story with the following morsel in it from FDIC chair(wo)man Sheila Bair:

“The 2006 [subprime] vintage is the weakest in terms of underwriting standards,” Bair said. “We are expecting 2008 and early 2009 to be somewhat nasty.” Next year the delinquency rate on such loans may hit 30 percent, she said.

While Bair didn’t expound on how she got that number, that little tidbit was buried in a story about how the subprime book of business at WaMu has been improving as of late. Bair’s comments would suggest the recovery might be short-lived.

A 30 percent delinquency rate would bury more than a few lenders that have survived the first round of credit contraction in the industry — if true, I suppose it’s a good thing they’ve got a little over a year to ramp up.