Crisis In Progress: Loan Spreads Widening Further [Housing Tracker]

Mortgage Downgrades Threaten $469 Billion In Bonds. “Lehman Brothers: Potential downgrades of residential mortgage-backed securities pitched as some of the safest investments may force money managers and other holders to unload up to $469 billion in the bonds… The bonds represent about 30% of outstanding “AAA” securities backed by U.S. mortgages. The Lehman study comes amid heightened worry that eroding credit in mortgages, especially so-called “Alt-A” loans that required less proof of income or assets, will cause losses to even the safest portions of the bonds. Standard & Poor’s is reviewing ratings on mortgage bonds after revising its loss projections higher in July.” (Financial Week, Aug. 25) 

Libor Signals Credit Seizing as Banks Balk at Lending. “Goldman Sachs: In a replay of the last four months of 2007, interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens… Nations accounting for half of the world's economy face a recession.  The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt, sparking the biggest end-of-year rally for Treasuries since 2000.”  (Bloomberg, Aug. 25) 

For 2008 Vintage, Fraud Abounds in Florida, California. “Mortgage Asset Research Institute report: While fraud on 2007 and earlier vintages is just now coming to light… newly-reported incidents of mortgage fraud increased by 42% in Q1’08. That’s reported fraud on brand new originations from Q1’08 that have since been classified as fraudulent; and it means reported fraud on the early part of the 2008 vintage is worse than the reported fraud on the similar chunk of 2007 vintage originations.” (Housing Wire, Aug. 25)

Fannie, Freddie Woes Roil Recovery. “A continuing collapse in stock prices will make it more difficult for the GSEs to raise the capital they need to shore up their finances and avoid a bailout… The cost of capital has grown more expensive for the GSEs, and they are passing that cost on. A standard Fannie Mae (FNM) 10-year multifamily loan is now priced at about 6.4%, compared with 5.6% in February… Rates charged for a standard 30-year fixed-rate mortgage spiked to 6.37% this week. A big factor behind that increase is a sharp drop in the price of mortgage bonds backed by the GSEs, as investors demand higher yields to buy those bonds. Yields for Fannie Mae's 30-year fixed-rate mortgage securities had increased 2 percentage points this week, to their highest levels in more than 20 years.” (Big Builder Online, Aug. 21)

 

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Comments

[fatcat:]

Judy,you are not going to be liked by all the talking heads who are blustering about the recovery at hand...Don't you know that the financials have bottomed?? Keep up the good reporting.

2008 Aug 28 06:34 PM

[helplessobs...:]

Ditto

2008 Aug 28 11:36 PM

[discov:]

Yeah, this is great reporting. Thanks for not being bought off (like most of the financial media)

concisetrading.blogspo.../
Ryan

2008 Aug 29 12:16 AM

[GMC:]

I used to read these posts because the titles interested me, now I look for quality submitter's names like yours. Thanks.

2008 Aug 29 08:30 AM

[ksmithdc:]

Great article...thanks!

2008 Aug 29 03:09 PM