Thursday, October 11, 2007

The United States of Subprime / WSJ

Brilliant! This is a must read and the interactive map "subprime tidal wave" is a must see!

Brilliant! Der komplette Artikel ist zu Recht auf Seite 1 vom WSJ. Die interaktive Karte "Subprime Tidal Wave" ist ein echter Hingucker und sollte auf keinen Fall verpaßt werden!

I suggest to read the entire link

Ich empfehle den kompletten Link zu lesen.

The United States of Subprime
As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.

To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.

Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations.

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.

The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish. Some borrowers may not run into trouble for years. ....

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Anonymous Anonymous said...


Not much really new in the WSJ article, but it does say that conditions will be bad for "years", which is a bit contrary to the usual spin, which often predicts an upturn in 2008.

Still the '$64k question' is: When, oder vielleicht ob, this will cause a downturn in equity markets?


2:54 AM  
Blogger jmf said...

Moin Eh,

that´s indeed the question.

It looks like the markets is pricing in a "moral hazard put" from almost every central bank out there.

And with the latest action i think they have every right to do so.....

Have you seen Honk Kong and the H shares?

3:03 AM  
Anonymous Anonymous said...

Have you seen Honk Kong and the H shares?

Ja. Unglaublich, oder?

But I cannot convince myself to jump on board that train (I guess it is more like a rocket ship) -- my small position will have to do for now.

Übrigens: On Bloomberg there is a video of someone saying the Hang Seng will go to 30k. But that's only about 3.5% above where it is now, and because it seems to rise at least 0.5% per day...Well, that's not an especially bold prediction -- it could be there next week. Maybe even tomorrow. Who knows.


3:27 AM  
Anonymous Anonymous said...

Ich bin Techniker, also:

Wetten, dass...?


3:31 AM  
Blogger jmf said...

Moin Eh,

thanks for the QCOM link. Risk reward looks "subprime"....

Very telling that even stocks with big problems are trading with a 21 pe.....

The entire China & Honk Kong market is really fascinating to watch.

I view this as a wonderful example of excess liquidity.

The animal spirit (thanks to the "moral hazard put") is just breathtaking.

I wonder after the central bank action why gold isn´t already at 1000$....

4:02 AM  
Blogger jmf said...

Countrywide Says Bad Mortgages Rise, New Loans Fall

Countrywide Financial Corp., the largest U.S. mortgage lender, said late payments on loans handled by its servicing business rose, foreclosures doubled, and originations fell 44 percent as housing sales slowed.

Delinquencies as a percentage of unpaid principal increased to 5.85 percent in September from 4.04 percent a year earlier, and about 0.8 percent above August levels, the company said in a statement. Foreclosures rose to 1.27 percent from 0.51 percent. Mortgages funded by the Calabasas, California-based company last month declined to $21 billion from a year earlier.

6:51 AM  
Anonymous Anonymous said...

The entire China & Honk Kong market is really fascinating to watch.

It's a kind of panic buying -- people afraid they will miss the next market high. I don't know how else to explain it, since it certainly does no seem like responsible 'investing'. But what do I know...


8:03 AM  
Blogger jmf said...

"Panic buying"

You nailed it!

8:15 AM  
Blogger jmf said...

Golub, New Bear Strategist, Sees S&P 500 at 1,700

Jonathan Golub, in his first market prediction as chief investment strategist at Bear Stearns & Co., said the Standard & Poor's 500 Index will climb to a record 1,700 next year.

Strong global economic expansion, low interest rates, ``solid'' earnings growth and ``reasonable'' stock valuations will fuel the market's advance, Golub wrote in a note dated Oct. 10. His forecast for the S&P 500 is 8.8 percent higher than the index's closing price yesterday of 1562.47.

``The current environment is constructive for stocks,'' Golub wrote. ``We remain optimistic over the medium-term.''

Golub is less bullish about U.S. stocks than Trahan, who said in an interview with Bloomberg News in August that the S&P 500 will climb to 1,700 by the end of this year. Trahan did not give a forecast for 2008.

8:25 AM  
Anonymous Anonymous said...

...said the Standard & Poor's 500 Index will climb to a record 1,700 next year.

At the moment it certainly seems possible. Eher wahrscheinlich.


9:21 AM  
Blogger jmf said...

I will bet against it...

Don´t know the timing yet :-)

9:38 AM  
Blogger Ben Bittrolff said...

"I will bet against it...

Don´t know the timing yet :-)"

JMF, let me know when you do know the timing... Ich habe naemlich auch keine Ahnung. Ich weiss nur das wir alle Angst haben sollen.

Panic buying always turns into panic selling...

10:37 AM  
Blogger jmf said...

Moin Ben,

after yesterdays reversal the timeline has narrowed.... :-)

12:13 AM  

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