As the headlines yesterday echoed, even the Fed has started to backtrack from its previous “well contained” dialogue to acknowledge that the credit crunch in the mortgage market is spreading. The Fed chief says subprime losses could hit $100bn, but if history is any judge the estimates they make are likely conservative
The place where the most obvious signs of the spreading is taking place, as noted here yesterday, is in the next step up on credit quality from subprime, to Alt-A, which is explained here: The Alt-A Word
That the ripple effects of deteriorating credit are having a large impact was exemplified by the blow up of Bear’s large subprime focused hedge funds, and investors who now are facing massive losses are not happy with that result.
As the trajectory of the contagion remains somewhat unclear, signs that the challenges will not only spread to higher quality assets here, but also to investors abroad hit the headlines today:
Australian investors hit by US subprime crisis
“An Australian investment fund is teetering on the brink of a billion-dollar collapse after being exposed to the subprime mortgage crisis in the United States.”
This is why I often prefer daydreaming about the future over thinking about the present…
Tyler | 23-Jul-07 at 8:45 pm | Permalink
July 23, 2007 Financial Times
“… adjustable-rate home loans sold at the peak of the high-risk lending boom in 2005 and 2006 will be reset. Given a recent tightening of lending standards as banks try to rein in their mortgage exposures, this raises the prospect of further serious losses. Christopher Flanagan, strategist at JPMorgan, estimates up to 45 per cent of borrowers facing resets will not meet criteria to refinance into new home loans.”
“…2006-issued subprime bonds rated BBB- fell…more than 50 percent since January”
http://www.ft.com/cms/s/bebcb87e-38b4-11dc-bca9-0000779fd2ac.html
DAL | 25-Jul-07 at 9:34 am | Permalink
Good pt Ty. Check out the graph on the upper right hand of the blog. Those “resets” are the ones at the peak happening over the next few months.