U.S. Subprime Loans Face Trouble
December 9th, 2006Via: Yahoo:
The failure of a small Californian mortgage lender on Thursrday increased nervousness in the credit derivatives market about the large number of US “subprime” mortgages extended this year.
The cost of insuring against default on securities backed by subprime mortgages rose after Ownit Mortgage Solutions, in which Merrill Lynch has a 15 per cent stake, closed its doors.
Its failure is the latest in a series of ominous developments in the market for subprime mortgages – higher interest loans made to borrowers who are seen as risky because of payment problems or large debt burdens.
There has been a sharp rise in the number of borrowers behind on their payments. The loans are often packaged into securities and sold to investors to help lenders reduce risk.
In recent years, this area has been one of the fastest-growing parts of the market for mortgage-backed bonds. So far in 2006, $437bn of such securities have been issued in the US.
The securities have been big business for investment banks which have been buying up mortgage lenders to ensure a continued supply of loans. Merrill last year bought a stake in Ownit, which made $5.5bn of loans in the first half of 2006. Ownit closed down this week after JPMorgan Chase, its main lender, cut off its funding.
Related: Inside a Wall Street Chop Shop
You’ve a knack for slapping the rose colored glasses right off our faces. I agree with KB; and aside from your hawk-eye view, you got a lot of class. Thanks for doin’ what you do…