Who caused this housing mess? Greedy lenders? Ignorant appraisers? Slick RE agents? Many blame it on lenders after they lowered their lending standards to accommodate an unhealthy share of subprime borrowers. (Note: As long as we have self-employment, shallow credit history, lawsuits, divorce and more, we’ll need subprime loans!) Well believe it or not, we found out today that more of us than ever are now subprime borrowers, and we need these now non-exhistant subprime loans more than ever.

New data released today by FICO Inc. show that a whopping 25.5 percent of consumers now have a credit score of 599 or below. That’s a market of more than 43 million people, and growing every day, too—thanks to unemployment levels that remain painfully high and not receding anytime soon. Subprime mortgages represented between 8 and 15 percent of total origination volume between 1995 and 2003. You can do the math – today’s announcement revealed a 200%+ increase since then.

Now that a quarter of us fit in the ‘subprime box’, this all underscores a unique irony to the financial mess we’re now in: much of the growth in demand for mortgages in recent history came out of the subprime sector, which is now exactly what 25.5% of us need. We need it, but can’t get it.

So, what happens now? There’ll be a handful of private lenders that make a bunch of money, and there’ll be many landlords that with inboxes full of applications from subprime borrowers looking to rent because they can’t buy. One could also argue that default rates on residential loans will continue increasing, as there’s a reason these borrowers were initially classified as ‘sub (below) prime (first)’.

One last thought to end it on – I’ve suggested to many of our clients that one’s credit score will mater less and less each day that passes. I think the news announced today supports this more than anything so far…

Jeff Grant, President, ShhortSale.com