Risk premiums on indexes of credit default swaps for subprime mortgage-backed securities (MBS) began to widen sharply late last year, especially for those on pools of mortgages originated in 2006. Credit spreads on new subprime MBS have also risen. Respondents to the Senior Loan Officer Opinion Survey in April indicated a substantial net tightening of standards for subprime mortgages.
Tighter lending standards in the subprime mortgage market – together with the possibility that the wellpublicized problems in this market may dissuade potentially eligible borrowers from applying – will serve to restrain housing demand, although the magnitude of these effects is difficult to quantify.