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Subprime lending, the crisis catalyst, making a comeback Add to ...

These are stories Report on Business is following Wednesday, April 11, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Subprime lending making a comeback Even as the world still struggles to shake off the devastating impact of the financial crisis, subprime lending is on the rise again.

As The New York Times reports today, several U.S. lenders are either trying to get back subprime borrowers they lost in the crisis or "tiptoeing" back into the market, a worry for consumer groups and lawyers given the traditionally high rates and late-payment fees attached to the loans.

A recent report from Equifax, which studies lending with Moody's Analytics, cited "notable increases" in such lending to those consumers deemed not as creditworthy.

Where credit cards are concerned, for example, lenders issued 1.1 million new cards to subprime consumers last year, marking a 41-per-cent increase to a four-year high, while card limits surged 55 per cent to the highest since 2008. Higher risk borrowers now account for more than one-quarter of the outstanding balances.

That's just one example. Equifax also cited growth in auto finance, where subprime borrowers now account for almost half of the market, and student loans.

"The evidence of increased lending to subprime consumers demonstrates banks' ongoing efforts to grow lending by providing credit opportunities to more consumers," said Amy Crews Cutts, the group's chief economist.

"Year-over-year results show borrowers are taking advantage of the new opportunities and seeking to diversify their financial activity, which is building momentum toward economic improvement."

In Canada, Counsel Corp. , a mortgage lender, announced just yesterday that it's getting into the "near prime segment" of the market.

"Street Capital plans to sell the mortgages it originates through its Street Options Program to institutional investors, as it does with the mortgages generated by its prime lending business," the company said, adding it is helping to "find solutions for the needs of clients with unique circumstances."

U.S. sues Apple, publishers The U.S. government is going after Apple Inc. and several publishers with allegations of a conspiracy over pricing of e-books.

The publishers include Hachette Book Group, Simon & Schuster, HarperCollins, Penguin Group and Macmillan. The first three have agreed to settle. Macmillan's chief executive officer said the terms of the settlement were "too onerous," and he denied any wrongdoing.

None of the allegations have been proven.

The department alleges that the tech giant and the publishers agreed, prior to the iPad being introduced, to limit competition. It cited how Amazon.com Inc. drove down prices markedly.

"In developing and then mass marketing its Kindle e-reader and associated e-book content, Amazon substantially increased the retail market for e-books," the lawsuit says.

"One of Amazon's most successful marketing strategies was to lower substantially the price of newly released and bestselling e-books to $9.99," it adds.

"Publishers saw the rise in e-books, and particularly Amazon's price discounting, as a substantial challenge to their traditional business model," the U.S. alleged.

"As a result of discussions with the publisher defendants, Apple learned that the publisher defendants shared a common objective with Apple to limit e-book retail price competition, and that the publisher defendants also desired to have popular e-book retail prices stabilize at levels significantly higher than $9.99. Together, Apple and the publisher defendants reached an agreement whereby retail price competition would cease (which all the conspirators desired), retail e-book prices would increase significantly (which the publisher defendants desired), and Apple would be guaranteed a 30 per cent 'commission' on each e-book it sold (which Apple desired)."

Housing starts climb Condo development in Toronto, which economists are watching closely, continues to help drive Canada's construction industry.

Housing starts in Canada climbed in March to an annual rate of 215,600 units, Canada Mortgage and Housing Corp. said today, up from 205,300 a month earlier, and the strongest showing since the crisis began to set in in October, 2008.

The increase, the agency said, was due primarily to a rise in multiple starts, those that include condos and apartments, and notably in Ontario and on the Prairies. In British Columbia and Quebec, multiple starts slipped. Warm weather likely helped things along.

Starts of single homes dipped 2.4 per cent, CMHC said.

"Although we expect starts to soften in due course, the latest figures suggests that for time being the housing sector still has a considerable amount of energy, aided by low financing costs," said Peter Buchanan of CIBC World Markets.

In the first quarter as a whole, starts averaged 206,300, noted Robert Kavcic of BMO Nesbitt Burns. That's a gain of 4.2 per cent and the highest since the third quarter of 2008, though, he said, still well below pre-recession levels.

In Toronto, the centre of the condo watch, overall starts rose to 58,300, well above the six-month moving average.

"After such high volumes of pre-construction condominium sales over the past couple years, the timing of construction starts for these large projects can inflate the numbers in any given month," said Shaun Hildebrand, the agency's senior analyst for the Toronto area.

Starts of multiple units in Ontario rose in March to their highest level since August 2008, Mr. Kavcic pointed out, and the the first quarter was the best since at least 1990. While weather played a role, the numbers still highlight the "ongoing trend" in the condo market in the province, notably in Toronto.

"There’s still no question that Toronto condos are the hot spot in Canadian homebuilding," he said.

Italy pays higher costs For now anyway, the focus of the euro zone debt crisis has shifted from Greece to Spain and Italy.

Italy today sold €8-billion in one-year bonds, but at a steep cost as the rate doubled from an auction last month.

Yields on Italian and Spanish bonds have dipped from yesterday, but markets remain worried about those two countries.

Nokia slumps Shares of Nokia Corp. tumbled today on a disappointing outlook for its first- and second-quarter reports.

Finland's phone giant cited "competitive industry dynamics" hurting sales, notably in India, the Middle East, Africa and China.

"Our disappointing devices and services first quarter 2012 financial results and outlook for the second quarter 2012 illustrates that our devices and services business continues to be in the midst of transition," said chief executive officer Stephen Elop said in a statement.

"We are continuing to increase the clock speed of the company," he added.

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