Subprime lending was going out of fashion in homes for rent South Korea well before the U.S. crisis struck.

Now it looks set to shrink even further.

The industry, which offers consumer and mortgage loans to the riskiest borrowers, is in crisis in the United States as default levels have risen, squeezing lenders and sending shivers through global markets.

But in South Korea, loans from subprime players and others outside the mainstream lending industry represent only 5.5 percent of the country's gross domestic product, compared with 20 percent for the United States, according to Samsung Securities.

A crackdown on mortgages since late last year, aimed at cooling red-hot property prices, has been slowing demand for home loans this year, regulatory data show. Government plans to tighten rules on the subprime sector will cap the sector's growth further.
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As a result, the $50 billion industry, led by global banks like Merrill Lynch, Lehman Brothers and Citigroup, was already seeing a drop in demand, said Jang Byoung In, president of the mortgage lender GEM Investment Finance.

"Should the current slowdown in the property market continue for one year, more than half our subprime mortgage lenders may shut down their shops in the first half of next year," he said.

Further insulating South Korea from a subprime ripple effect is the fact that the loans are not widely held, in contrast to the United States, where a wide range of investors bought subprime lenders' securitized assets.

"It's not as developed as in the United States," said Jason Yu, analyst at Samsung Securities. "We have no securitization on subprime loans nor CDS," or credit default swaps, for them.

South Korea is one of the few Asian countries with a significant subprime market.

Nearly a quarter of South Korea's 17,000 registered subprime lenders offer mortgage loans, estimated at a total of $3.2 billion, according to the Korea Finance Union, which represents them.

Including mom-and-pop stores offering personal loans, the country has an estimated 40,000 subprime lenders.

Subprime mortgages outstanding are a tiny fraction of the subprime lenders' total credit, with credit loans making up the bulk of their loans.