US Depression Tremors: Subprime Lenders in Meltdown

US Depression Tremors: Subprime Lenders in Meltdown

news.moneycentral.msn.com

Trading was halted in New Century Financial on Monday with the second-largest US subprime lender teetering on the edge of bankruptcy, sparking fresh fears about whether turmoil in the sector could spread and damp US economic growth.

Some economists also fear that the collapse in subprime loans could trigger wider house price falls.

Related News Links:

Is America Headed for a Depression? Seeking Alpha, NY

America’s Subprime Collapse and What It Means for the Rest of the World Daily Reckoning, Australia

[edit on 13-3-2007 by Regenmacher]

First dominoes towards a US housing collapse is now failing. New Century is virtually bankrupt and Accredited Home Lenders Holding Co is facing a meltdown at market open.



A Primer on Subprime Mortgage Meltdown AP
Subprime Mortgage Meltdown Could Ripple Through Economy

More Trouble in Subprime City BusinessWeek Online

Asian Stocks End 1-Week Rally Bloomberg

European Stocks Drop Bloomberg

HK shares fall Reuters

Fed should step in soon if the want to keep this from going and further and risking a panic sell off in all banking sectors.

New Century says Calif. launches criminal probe Reuters

[edit on 13-3-2007 by Regenmacher]

Criminal probe, eh? That will put one US Attorney to good use. Not sure what that can do for the economy though, but I like the thought of justice being done. I wouldn't put it past the shysters to have had malice aforethought.

It's really a shame when people who can afford to rent a home, can't afford to own one. Same money, just not going to slum lords.

What ever happened to fair housing in this land?

I watched a financial report on N24 yesterday in Germany where the reporter talked about New Century going bankrupt and that this could lead to a collapse in the housing industry in the US.

So things willl sure be intresting especially if they start to talk about this over here in Europe.

Oh yeah. This has kept me on the phone and online for most of the day. I hope that those who can will use this situation as an incentive to pay off their plastic. I do expect the Fed to cut interest rates, but it's going to be too little too late.

There's only one unresolved question in my mind. How much of a shock will this be to the economy? It's going to affect just about anyone who has debt on pastic or in real estate. Anyone who can ride it out stands to gain from it on the other side.

And in spite of news like this we see that Bank of America wants to offer credit cards to illegal aliens. Talk about sub-prime lending! I have no doubt that a lot of those bad sub-prime mortgages also belong to those folks originating (illegally) from south of the border.

[edit on 3/13/2007 by centurion1211]

My thinking isthat the B of A move is actually desperation. they see what's coming, and they're trying to suck up as much of the remaining money as they can before credit dries up.

Yes, the dirty side of capitalism. That some would be willing to sell bullets to their own enemies.

So what does this mean for those of us who have credit card debt and are home owners?

You know, if the United States Gov't REALLY wanted to assist it's overall wealth (as it's represented across all economic levels) they could offer the equivalent of what were war bonds or something like that to people with excellent credit.

Then those people with excellent credit but high debt could continue to pay off their debt at a lower rate, but displace their monies directly into the Federal Budget. This way we could work off our National Debt by paying for it through the interest collected on those accounts, rather than giving the interest to the private banks.

That seems fair, since I really don't think those banks are being taxed enough, not to mention the top 2% of the country who only pays out a portion of the taxes that are owed anyway.

Yep.
Some of us saw this one comming.

A somewhat related thread from last week that makes a connection between the recent market slides and the subprime market: World Markets Continue their Slide.

See this particular post on the subprime market:

Originally posted by Gools

The subprime market is an absolute bloodbath and leading the housing collapse!

Since the end of 2006 until today there are a total of 31 mortgage lenders who have gone out of business! You can keep track of all of the sordid details here:

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]

Many have been watching the carnage since early this year:

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.

All of the recent fun in the stock markets is related to this imploding bad debt situation.

Last week there were rumours that HSBC was in some kind of trouble. The Hongkong and Shanghai Banking Corporation (HSBC) is one of the largets banks in the world with deep rooted ties to China. Over one quarter of US motgage debt is owned by "Chinese" interests. You will recall that I had speculated about something like this. Well...

Today HSBC has announced that they will be taking an $11 billion dollar hit due to bad US loans. That's gonna leave a mark!

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.

Here's coverage in Forbes from yesterday: Subprime Virus On Wall Street

And this from Today's New York Times:

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.

Things are quickly getting so bad that household names like Goldman Sachs and Merrill Lynch and Morgan Stanley now have credit ratings of Junk Status because of their exposure to bad debts Reported by Bloomberg the other day:

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.

Like I said last week... this ain't over... not by a long-shot.

.

Notice that last week the "Implode-o-Meter" listed 31 companies gone kaput. Have you visited that site? The number has jumped to 36 in one week!

That's five mortgage lenders gone in one week with New Century hogging all the headlines due to it's size.
.

[edit on 3/13/2007 by Gools]

Most everyone on the TVs StockMarket channels aren't talking Recession-Depression...they are saying stuff like 'downturn'

They soberly anticipate a market retreat of 10% in total,

so look for a total loss from the market high of 12,700+
of perhaps 1,270+
giving us a new benchmark state of equilibrium @ DOW: 11,450+

that sure isn't the end of the capitalist economy


~~~~~~~~~~

in my entry of the 'Million Dollar Portfolio Challenge'
i'm in the top 3% ; Rank # 6,188 of the 250,000+ contestants

which is just beginners luck

Originally posted by Justin Oldham
Anyone who can ride it out stands to gain from it on the other side.

Guess we'll see, but what gains can be made of this? Here it says: "In the end, it's going to hurt the legitimate borrowers."

What fed the subprime lending spree?


Some experts are pointing to a securitization equation: No consequences for loan originators + investors bundling risky loans = a menu ripe for subprime abuse.


TEXT OF STORY

MARK AUSTIN THOMAS: Some experts are tying the crisis in subprime lending to the apparent abuse of a financial innovation. That innovation's called "securitization." It's the packaging of mortgage loans into salable securities. Marketplace's Steve Tripoli explains how securitization might have fed the subprime lending spree that's now unraveling in bad loans and corporate collapse.

STEVE TRIPOLI: Securitization greatly expands available credit. But it also off-loads risk.

Loan originators no longer hold the consequences of reckless lending. Investors believe that bundling risky loans makes them safer. Put the two together and the folks making the money are all looking the other way.

Atlanta CPA Kevin Byers analyzes such transactions. He says securitization helped and hurt the wrong people.

KEVIN BYERS: To the extent that that money is available in abundance for loans with looser underwriting guidelines, essentially giving borrowers enough rope to hang themselves with. Or, for that matter, giving people that are out to commit fraud the liquidity to do so. In the end, it's going to hurt the legitimate borrowers.

So does Byers think securitization may have triggered some subprime abuses?

BYERS: It funded it, so, you can follow the money. And in my business, that's how we get to our answers.

Some investors of course will be hurt. And regulators who'd been warned will have egg on their faces. But the bigger worry now is that all this will spill into the wider economy.


source: Marketplace

I reckon the seriousness of this is being ignored.

All the pundits are saying "nothing to fear, keep buying", but this is a very SERIOUS matter.

Originally posted by JackCash
So what does this mean for those of us who have credit card debt and are home owners?

I am interested in this, but can anyone answer my question?

I'm listening to some highlights on bloomberg, i don't like what they're saying.

This is being described as a "non-event", which is stupid. FOXNews had guests telling viewers NOT to buy, the market is not good.

The bottom of the market could be ripped out

sorry, this was posted twice.

JackCash

[edit on 13-3-2007 by JackCash]

Well,

I look at this a little skewed...First I think this is just one in many ways the powers that be move money from on area of the ecomony to another...Some would call it an economic "Shock" or "spike". All those jokers on wallstreet don't even know how this stuff is going to pan out. The economy goes up it goes down..And if you tie all your cash up into these false investments or electronic money then you stand a great chance to have a down turn. The only thing I can feel good about is I own my deeds not a bank.

There is only so much bull*hiting and juggling of papers and credit that people can do.

Most people only look at what the monthly payment is, not that they truly can't afford what they are buying.

This correction was a long time coming, now lets hope we don't get to many corrections all at the same time, that would be really bad world wide.

Credit is a good thing just as long as it is not abuse and in the past 20 years it has gotten severely abused without any checks and balances. I think this will pass but many many people will and are losing their homes.

Did any of you know that a bank or lending institution can call the full amount of a loan in at anytime, if the market starts to drop? Yes it sure can and has in the past.

Asia stocks open up soon...

expect them to take a hit, Europe will follow heavy too