On Subprime Mortgage Industry

– There are similarities between subprime and manufactured housing financing

– The most important factor for the subprime industry is the health of the economy, which has been good of late

– Securitization moves the ultimate lender farther away from borrower, which is what causes problems

– A shock will probably not occur unless we see materially higher long interest rates…200-300bps

– As long as participants in that industry are charging a high enough interest rate to account for the inherent credit risk, it should be okay.

– As far as housing prices go, there won’t be a problem until the collateral value falls below the value of the loan

– “We haven’t played in that [the subprime industry] yet, but we do own H&R Block, which does some of those loans, although they don’t keep the paper.”

– REIT structures in the subprime industry aren’t necessarily a bad thing

– The economy is going to be far more important than the structure used

Source: Meeting with Warren Buffett, Jan 28 ,2005