Thursday, March 01, 2007

mortgage defaults

bcbuds sent me this link (thanks buds).

New Data Show That Nontraditional Loans Are BeginningTo Haunt Borrowers With Midlevel Credit; Prime Still Fine

The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.

Borrowers who take out Alt-A mortgages are considered less risky than subprime borrowers because of their higher credit scores. But as the housing market cooled and loan volume declined, some lenders lowered their standards for Alt-As. Now a rising number of borrowers who took out these loans are running into trouble.
We will be hearing the same here soon enough, me thinks.

The company cut back on riskier loans and began relying more on analytical tools to verify a borrower's income and creditworthiness.
What a great idea. Let's use some analysis and verification.

As in the subprime sector, the riskiest loans are those made to home buyers who put little, if any, money down and don't document their income or assets.
CMHC thinks it's a great idea to back 0% down loans - with our tax dollars. Will heads roll when it goes sideways? Scameron jumped ship. Did he see his head rolling?

The mortgage industry is battling a rash of cases in which borrowers, loan officers and appraisers collude in providing false information to induce lenders to advance more money than homes are worth.
That sounds very similar to what has been going on here. I think that the term was "liar loans".

I think we are heading for a real mess - and fast. Your thoughts?


Real estute said...

What amazes me even more than the borrowing practices of the subprime borrower, is a guy who can come home from the hosptial with a newborn and still have the collective brain cells to analyze lending rates and the eventual demise of the hot RE market. Well done.

WoodenHorse said...

Hey Solipsist: Congrats on the new baby!

Question for the other readers: Can anyone tell me the most effective way to short the ABX:HE index?

bc_cele said...

I was just driving through Chicago a few days back and it was sickening. Even after the toxic loans have been exposed for what they are, the ads are all over the radio for ARMs, subprimes and refis. I was shocked. It was about 1/3 of the ads.

If you need proof that most people have the intelligence of a squirrel on crack, this is it.

swirlyman said...

I don't know of any sub-prime lender ETFs, but if I were you I'd look for a public Canadian sub-prime lender like Home Trust Co. (HCG), which have not shown any declines yet.

WoodenHorse said...

Thanks swirlyman. I'll take a look at them.

Does any else have a suggestion?

wizardofozziejurock said...

Is there not one politician in this whole country who will denounce the CMHC's zero down policy!?

WoodenHorse said...

Why would they? They're all likely land owners. If you're already an owner these policies drive up the price of your asset.

patriotz said...

More to the point, 2/3 of Canadians are homeowners, and they have a higher voting turnout rate than renters as well. You're not going to get any of them to vote for you by saying house prices are too high.

There simply isn't any upside at the polls to fighting high house prices, which is why no parties are doing it. They simply promote "ownership" programs which support continued high prices.

Which is highly unfortunate, since in every boom/bust cycle a lot of ordinary people get burned, in addition to the speculators who richly deserve it.

Londonernow said...

The ABX:HE Index can only be shorted with a dealer. i.e. you need credit swap lines with a Deutsche Bank or Morgan Stanley. Anyway the index is quite illiquid with a bid/offer for the BBB- tranche on one of the most recent issues of 60/66 (par being 100), so a full 10% bid/offer spread which is massive.

tulip-Mania2 said...

"There simply isn't any upside at the polls to fighting high house prices, which is why no parties are doing it."

Agreed, until such time as there are thousands of unemployed construction, and other housing related workers out of work.

What a mess, imagine being a construction worker, a realtor, or a mortgage broker, with a huge debt, and you are out of work, when the first time buyer is virtually extinct?

What will pop this bubble first?

Higher Prices or Lower Prices?

Tick Tock, Tick Tock

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