Thursday, March 22, 2007

Subprime Loan Meltdown Engulfs Even Borrowers With Good Credit

comeback of the down payment. what a revolutionary concept.....

die rückkehr ner anzahlung......was sind für deutschen doch manchmal genial......

March 22 (Bloomberg) -- The subprime credit crunch is beginning to ensnare even borrowers with good credit.

Lenders are increasingly refusing to lend to homebuyers who can't make a down payment of more than 5 percent, especially if they won't document their income. Until recently such borrowers qualified for so-called Alt A mortgages, which rank between prime and subprime in terms of risk. Last year the category accounted for about 20 percent of the $3 trillion of U.S. mortgages, about the same as subprime loans, according to Credit Suisse Group.

``It's going to be very difficult, if not impossible, to do a no-money-down loan at any credit score,'' .... Companies that buy the loans ``are all saying if they haven't eliminated them yet, they'll eliminate them shortly.''

Tighter lending standards may slash subprime mortgage sales in half this year and Alt A mortgages by a quarter, according to Ivy Zelman, a Credit Suisse analyst in New York who covers homebuilders. The new requirements will force some prospective homebuyers to save more money for a down payment or risk being denied credit.

Pulling Back
Bear Stearns Cos., General Electric Co.'s WMC Mortgage, Countrywide Financial Corp., IndyMac Bancorp Inc., Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Credit Suisse have all said in the last two weeks they're pulling back from buying Alt A mortgages sold with no down payment or in a refinancing of the house's entire value. Such companies facilitate the mortgage market by buying loans and repackaging them for sale as bonds to buyers such as insurers and hedge funds.

Mortgages are categorized as Alt A when they fall just short of the typical standards of Fannie Mae and Freddie Mac, the two largest U.S. mortgage companies. Besides some loans requiring no down payment or proof of income, they are often made to buy a second home, a rental unit or to speculate on real estate. Also often falling into the category are loans that are ``option'' adjustable-rate mortgages, whose minimum payments can fail to cover the interest owed.

Defaults Rising
Consumers borrowed 100 percent of their home's value on about 18 percent of Alt A loans made last year, according to Bear Stearns, the largest mortgage-bond underwriter. Another 16 percent had loan-to-value ratios above 90 percent as well as limited documentation, they say. ( that makes them today loans with close to 100%...../ das dürfte die meisten dieser kredite zu 100% darlehen machen...)
The category comprised about 5 percent of new loans in 2002, according to Credit Suisse. Late payments of at least 60 days and defaults on Alt A mortgages have risen about as fast as on subprime ones, to about 2.4 percent, according to bond analysts at UBS AG. Loans in the category made to borrowers with low credit scores, equity and documentation are doing about as badly as subprime loans, according to Citigroup Inc. and Bear Stearns analysts.

Rapid credit tightening that's ``been isolated to the subprime world has really migrated'' in the past two weeks to Alt A offerings that involve borrowing nearly all of a home's worth, ..... ``We're just hopeful it will settle down soon.'' ....

Limits Welcomed
Some lenders say it's high time that buyers are discouraged from buying real estate with no money down.

``Could we have a little skin in the game from the borrower, please,'' said Rick Soukoulis, chief executive officer at LoanCity, a San Jose, California-based lender that stopped making mortgages last week to customers who want to borrow more than 95 percent of the value of their house due to the shrinking secondary market. ``Something to lose if you go into default?''
(they better shoul have been carefull in the years 2004-2006..../ das hätte er mal besser in den vergangenen jahren machen sollen ....)
LoanCity, which made about $6 billion in mortgages last year, went out of business on March 20.

The slump in subprime loans has ``drastically eroded'' appetite for bonds backed by Alt A loans, according to a March 9 report by Credit Suisse. The extra yield that investors typically demand on the parts of the securitizations with the lowest investment-grade ratings have risen to 3.50 percentage points over the one-month London interbank offered rate from 2.15 percentage points in September, according to Bear Stearns.

Resale Woes
``If you couldn't sell something, you wouldn't do it either,'' UBS analyst David Liu in New York said. Part of the problem is falling demand for ``piggyback'' home-equity loans used to make down payments, he said.

New York-based Citigroup will no longer buy home-equity loans made to borrowers who won't prove their incomes and want more than 95 percent of their home's value, according to e-mails from salespeople. Mark Rogers, a spokesman, declined to comment.

New York-based Bear Stearns, the third-largest Alt A lender according to newsletter National Mortgage News, last week stopped buying such loans without down payments of at least 5 percent. For borrowers not fully documenting incomes or assets, the maximum loan-to-value ratio will be 90 percent.

Bear Stearns' EMC Mortgage unit told loan sellers of the changes on March 13, giving them a day's notice. On Feb. 26, EMC said it would start requiring down payments of only 5 percent in the low-documentation category, giving sellers until March 12 to submit loans under the old standards. On March 1, the deadline moved to March 6. EMC didn't change ``full documentation'' programs then.

...People who qualify for prime mortgages don't experience any trouble getting a loan.

Lower Standards
Bear Stearns will finance 25 percent to 30 percent fewer non-prime mortgages this year as it tightens credit, Chief Financial Officer Sam Molinaro said on the company's earnings call last week.

``Last year, we did about 50 percent less in subprime than we did the year before,'' Mary Haggerty, co-head of Bear Stearns' mortgage finance department, said in an interview, adding that it has been tightening Alt A standards since December. ``We always try to be ahead of the market.''
i cannot resist... bear sterns was not ahead of the curve upgrading new century just a few days befor the implosion and it has also lend big money to new century.....
da kann ich einfach nicht wiederstehen....bear war nicht ahead of the market als sie new century ein paar tage vor der implosion heraufgestuft haben. zudem haben sie etliche 100 mio$ kredite an new century ausstehen......
Other banks to provide credit facilities to New Century include Deutsche Bank, with $1bn, and Credit Suisse, with $1.5bn along with a slew of US lenders including Citigroup, Bear Stearns and Bank of America.
make sure you read this piece from russ winter / ihr solltet zudem diesen link lesen

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Anonymous jml said...

Jmf, what great graphics you use. I hear that Ireland and Denmark housing markets are now heading south - how about doing an aricle on those.

2:36 AM  
Blogger jmf said...


ireland has really troubles. the rates set from the ecb were way too low for them.

denmark is also going gangbusters and has accelarated (up to 20%)especially in the last 12-18 month. but i think the problems are not so severe as in uk,ireland or spain.

2:49 AM  
Blogger bub said...

``Could we have a little skin in the game from the borrower, please,'' said Rick Soukoulis.

What the hell? Sounds like one of those damn Commie Pinkos. This is America. Free Money for All.

5:45 AM  

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