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Freddie Mac, one of the biggest investors in U.S. mortgages, plans to toughen its standards and stop buying certain types of risky loans that have been linked to a high number of delinquencies and defaults.
The decision is the latest sign of the deep problems roiling the subprime mortgage market, which caters to borrowers who could not qualify to buy a house with a conventional loan, including people with blemished credit records.
The Mortgage Lender Implode-O-Meter
I set this page up on December 31, 2006, to keep track of mortgage lenders in the US going bust since approximately December 2006, when it seems the first of them started going under. Many observers (including myself) had been anticipating this for some time, as rising home prices (and other financial assets) have collided with the deteriorating consumer balance sheet and low-as-they-can-possibly-go interest rates (heavily reliant on the dole of China and the oil exporters).
It appears what had to give is now finally giving: the latest subprime loans are going delinquent the quickest, and it seems likely that their prior kin will soon follow (and many of these will likely end up in foreclosure). Further, I expect a large swathe of prime loans to go bad (the prime/subprime distinction is quite fuzzy anyway). Originators cannot handle the buybacks, and so when challenged by them are immediately folding. The phenomenon is just getting started. What will the banking industry—often all or part owners in these enterprises—do? Stay tuned.
List of the Defunct Lenders:
This is our list of lending operations that have shut down (see also ailing lenders). This includes all types (prime, subprime, or a mix of both; retail or wholesale; subsidiaries and entire companies) as well as modalities (exiting the business, shutting down under distress, voluntary or forced by MBS buyers, or going bankrupt). The list, with links to stories and whatever details we have available (most recent first) follows: [see link for all the info]
Subprime Lenders gone Too Far - A Time Bomb Waiting to Explode
January 12, 2007
Well guess what - the chickens are coming home to roost. By late in 2006, the rate of subprime loan delinquencies of over 60 days was up to nearly 8% according to UBS. The Center for Responsible Lending (CRL) projects that nearly 20% of subprime loans made in the period 2005 to 2006 will fail. The New York Times stated that “about 2.2 million borrowers who took out sub-prime loans from 1998 to 2006 are likely to lose their homes”. One of my favorite commentators, Peter Schiff, believes the the NY Times estimate are too optimistic.
Subprime Titanic Hits Iceberg!
February 22, 2007
Between reps and warranties and widening mortgage credit spreads, most subprime lenders will end up closing down or heading to Federal Bankruptcy Court. Indeed, even mortgage firms with limited exposure to subprime loans could fail. Even if a mortgage company survives, it will now have to dramatically raise interest rates to borrowers and put in place sound loan underwriting.
Market reports show that at least 21 sizeable subprime lenders have already shut down or filed bankruptcy [as of Feb 22 - 10 more since then!], and the head of Countrywide Financial estimates that as many as 20 to 30 small mortgage originators are failing every day!
In markets where prices are failing like a stone, lenders will be dangerously exposed to serious losses.
Anyone aware of the fraud and foolish underwriting that has been ongoing in mortgage origination should be honest enough to admit we’ve only seen the “tip of the iceberg” so far, and mortgage lending is heading straight towards a massive piece of ice.
HSBC reportedly to write off $11 billion on U.S. mortgages
Last Update: 5:44 AM ET Mar 4, 2007
LONDON (MarketWatch) -- HSBC Holdings will take a charge of $11 billion to cover the bad debts seen by its acquired Household division in the U.S., according to reports from the Sunday Times and Sunday Telegraph newspapers. HSBC reports its annual results on Monday. The bank recently issued its first profit warning over mounting bad debts in the U.S.
Mortgage Crisis Spirals, and Casualties Mount
Now an escalating crisis in the market, which seemed to reach a new crescendo late last week, is threatening a wide band of people. Foremost are the poor and minority homeowners who used easy credit to buy houses that are turning out to be too expensive for them now that mortgage rates are going up, but the pain is also being felt widely throughout the business world.
Large companies that bought subprime lenders during the boom, like H&R Block and HSBC, are now scrambling to sell them or scale back their exposure.
Goldman, Merrill Almost `Junk,' Their Own Traders Say
March 2 (Bloomberg) -- Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds.
Prices for credit-default swaps linked to the bonds of the New York investment banks this week traded at levels that equate to debt ratings of Baa2, according to Moody's Investors Service. For Goldman, Morgan Stanley and Merrill that's five levels below the actual Aa3 rating on their senior unsecured notes and two steps above non-investment grade, or junk.
Traders of credit derivatives are more alarmed than stock and bond investors that a slowdown in housing and the global equity market rout have hurt the firms.
Originally posted by hikix
well im a mortgage broker, so this is real bad news for me!
Originally posted by hikix
... 8 of our banks have just closed down. ... I cant get too in to it right now
``Is there a big disaster looming in the mortgage market -- that's clearly the concern right now,'' said Dan Veru, who helps manage $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. ``It's whether it can spread into the prime lenders and are we going into a down credit cycle.''
Bernanke Warned by Real Estate Analysts: Housing Collapse Is Much Worse Than You Say
(LPAC)--A real estate investment and analysis firm, John Burns Real Estate Consulting, said on May 21 that it is 'going public with our concerns' that the national sales information for both new and existing homes, is misleading and covering up a deep plunge of the housing sector. 'The housing market has softened much more than is being reported' by the Fed, and the National Association of Realtors (NAR), says JBREC. Full Text
May 25 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly fell in April to the lowest level in almost four years, dimming prospects for a quick recovery in the housing industry.
Purchases fell 2.6 percent to an annual rate of 5.99 million last month from 6.15 million in March, the National Association of Realtors said today in Washington. A measure of the supply of homes for sale rose to the highest since August 1992.