HowardThe Sub-Prime Mortgage, Frosted Mini Crash
February 15th 2007 01:42
Verizon's Jobs, Virtual reality?
The crash goes on. While Verizon, Nextel, etc. search for the last jerk without a cell phone, the housing mortgage market is about to blow out. At least in the US of A.
[sources: Feb. 12 {Bloomberg}; wires] THE STOCKS OF MORTGAGE LENDERS FALL STEEPLY A THIRD DAY IN A ROW, AS SUBPRIME MARKET IS HIT BY NEW TREMORS. On Monday, Feb. 12, shares of some of the largest lending institutions to the $950 billion subprime mortgage market continued to plummet. By late afternoon, the stock price of California-based New Century, the U.S. second largest subprime lender, fell another 7.7%, after its stock had plummeted by 36% last week. The shares of three other subprime lenders, Fieldstone Investment Corp., NovaStar Financial Inc. and Accredited Home Lenders Holding Co., each sliding more than 5% on Feb. 12, after NovaStar's stock had dropped by
14% last week. Last week, Dope Inc.'s Crown bank, Hongkong and Shanghai Banking Corp. (HSBC), increased its loan loss reserve by $1.8 billion to cover its growing losses in the U.S. subprime market.
The subprime mortgage market is predatory: The banks lend to individuals and households, who have already defaulted on their credit cards, their mortgages, etc., and whose incomes are often toward the bottom of the lower 80% of family-income brackets. The banks charge usurious interest rates, impose heavy fees and penalties, etc. on these households. Moreover, the banks sign these households up to buy homes in the $350,000 to $750,000 range, which they could never realistically afford. However, the volume of subprime mortgage lending has leapt from approximately $170 billion in 2001, to between $650 and $950 billion in 2006; the latter comprises one-tenth of all mortgages outstanding. More ominous, there are highly risky derivatives issued against subprime mortgages--mortgage-backed securities, collaterlized debt obligations, etc.--which investors globally are buying, and which intersect, and could be the detonator exploding the $500
trillion derivatives market.
The delinquency rate on subprime mortgage loans, on which borrowers have fallen 60 days or more behind, jumped to 12% in 2006, according to First American Loan Performance, as borrowers cannot meet the swelling monthly mortgage. And this is only the side of the mess that is public. What is going on under the sheets?
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