In the news, two bond rating agencies, Moody's and Standard & Poor's bond ratings on mortgage-backed securities within the subprime sector have been significantly downgraded, meaning the premium on subprime loans sold to the secondary markets will continue to suffer. Rate increases were necessary just to break-even on those loans. Just this week Bear Sterns, one of the largest global investment banks and securities trading firms in the world, told investors that their subprime hedge funds are "almost worthless". According to reports from Bloomberg, Forbes and other mortgage related resources, subprime lenders everywhere are tightening standards, canceling ARM and stated products, and some even exiting residential lending altogether.
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in the big picture the dollar amount of bad subprime loans is insignificant when compared to the total number of loans.
the secondary market has no desire to continue to purchase 2/28's and similar bad programs.
the non-prime and alt a markets continue to exist, although in a more responsible manner.
that's a good thing.
ps; the sun is not going to fall out of the sky.
Jul 22, 2007 08:56 AM
Rainmaker
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