Sub Prime Blues

[SON]

AP
New Mortgage Foreclosures Set Record
Thursday September 6, 11:47 am ET
By Martin Crutsinger, AP Economics Writer
Subprime Mortgage Woes Push New Home Foreclosures to a Record High
WASHINGTON (AP) -- The number of homeowners receiving foreclosure notices hit a record high in the spring, driven up by problems with subprime mortgages.The Mortgage Bankers Association reported Thursday that mortgage-holders starting the foreclosure process in the April-June quarter reached 0.65 percent, marking the third consecutive quarter that this figure has set an all-time high.
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The delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring, rising to 5.12 percent of all loans, up nearly three-fourths of a percentage point from the same period a year ago.
Doug Duncan, the MBA's chief economist, said the worsening performance was driven by two factors -- heavy job losses in the Midwest states of Ohio, Michigan and Indiana and the collapse of previously booming housing markets in California, Florida, Nevada and Airzona.
The Midwest has been hit hard by a heavy loss of jobs in manufacturing, especially in autos and related industries.
"The percent of mortgages in Ohio that are 90 days or more past due or in foreclosure is still more than twice the national average and 1 percent of all the mortgages in Michigan had foreclosure actions started on them during the last quarter," Duncan said.
He said there were also significant problems in the neighboring states of Indiana, Illinois, Kentucky, Tennessee and Pennsylvania.
Analysts said the problems in the formerly red-hot housing markets of California, Florida, Nevada and Arizona reflected in part speculators walking away from mortgages they can no longer afford.
During a five-year housing boom, the prices in these areas surged, creating what many analysts have described as a speculative bubble as investors bid up the price of homes hoping to quickly resell them for a profit.
Now with home sales falling, the inventory of unsold homes rising and prices stagnant, some speculators are choosing to default on their mortgages.
Another big problem is that an estimated 2 million adjustable rate mortgages are scheduled to reset this year at sharply higher interest rates, which will cause monthly payments in some cases to double or even triple, a problem that is especially severe in the market for subprime mortgages, loans offered to borrowers with weak credit histories.

 

[SON]

The Fed has injected some 200 billion dollars into the financial system since August 9 in a bid to boost credit flows which have seized up due to problems linked to the distressed US mortgage market.

Can one of you Financial "insiders" explain this to us common folk?

 

[Capricious]

The Fed has injected some 200 billion dollars into the financial system since August 9 in a bid to boost credit flows which have seized up due to problems linked to the distressed US mortgage market.

Can one of you Financial "insiders" explain this to us common folk?

Sure.


Someone buys a "security" and pays $100.00 for it.

It loses value and is now worth only $50.00

$50.00 has "disappeared" from the economy,
which means there is less money to go around,
so money gets scarce.

The Federal Reserve system creates (out of thin air)
$50.00 and loans it to a bank, which replaces the
$50.00 which disappeared from the economy.

So we end up with the same amount of money in the
economy that we started with.

 

[SON]

Sure.


Someone buys a "security" and pays $100.00 for it.

It loses value and is now worth only $50.00

$50.00 has "disappeared" from the economy,
which means there is less money to go around,
so money gets scarce.

The Federal Reserve system creates (out of thin air)
$50.00 and loans it to a bank, which replaces the
$50.00 which disappeared from the economy.

So we end up with the same amount of money in the
economy that we started with.

And they say Black Magick is dead? I don't think sooooo

 

[SON]

Countrywide to axe 12,000 workers

By David Wighton in New York
Published: September 8 2007 00:16 | Last updated: September 8 2007 00:16

Countrywide Financial, the biggest home lender in the US, on Friday night announced plans for up to 12,000 job cuts, or one-fifth of its workforce, in the next three months as it forecast a slump in mortgage volumes next year.
The company said the job cuts could be lower if interest rates fell and mortgage market prospects improved. But on the basis of the current interest rate environment it was predicting a 25 per cent fall in the total mortgage market in 2008.

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[SON]

Worst crisis for 20 years, say banks

David Smith and John Waples

LEADING bankers are warning of the worst crisis in the money markets for 20 years, which will come to a head this week when $113 billion (?57 billion) of commercial paper ? market IOUs ? comes up for refinancing.
This huge refinancing, mainly through London, exceeds the $100 billion that became due in mid-August, and which sparked the most serious phase in the money-market crisis, which has seen banks scrambling for funds and market interest rates rising sharply. ?This is a serious pressure point,? said one leading banker.
Another senior executive of one of Britain?s top five retail banks said: ?These are the worst conditions I have seen in money markets for 20 years?.
The huge amount of commercial paper becoming due is the hangover from the crisis in credit markets that began with American sub-prime mortgages. Many of the off-balance-sheet structured investment vehicles (SIVs) set up by the banks were borrowed in the form of asset-backed commercial paper.
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• Problems are on scale of Great Depression

• America is facing housing crisis, UK next

Now, even if they succeed in rolling over some of this paper this week, they will eventually be forced to take some of it ? much of which is of questionable value ? onto their balance sheets. To meet this potential liability, banks are hoarding cash and have stopped lending to each other. This has created a liquidity freeze.