Walter Yannis
02-24-07, 07:55
Telegraph (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/02/24/cnusecon24.xml)
US mortgage crisis goes into meltdown
By Ambrose Evans-Pritchard
Last Updated: 1:15am GMT 24/02/2007
Panic has begun to sweep the sub-prime mortgage sector in the United States after the bankruptcy of 22 lenders over the past two months, setting off mass liquidation of housing loans packaged as securities.
Analysts say the housing bust is pulling America into recession, citing a 14.4pc drop in housing starts
The rapid deterioration could not come at a worse time for British bank HSBC, which has set aside $10.5bn (£5.4bn) to cover bad loans in the US.
The cost of insuring against default on these loans has rocketed in recent weeks, from 50 basis points over Libor to 1,200, raising fears that a credit crunch could spread to the rest of the property market.
Low-grade BBB-rated securities - measured by the ABX index - have crashed from near par of 100 in early November to 72.5 this week.
Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown. "It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults," he said.
California's ResMae Mortgage filed for bankruptcy last week as it struggled to cope with defaults on a $7.7bn book of sub-prime loans issued last year, while Accredited Home Lenders in San Diego warned that bad debts had reached 7.18pc of its portfolio.
HSBC chief executive Michael Geoghegan, who stepped in to take control of the US division earlier this month claiming "The buck stops at my door", has ousted top executives. But the worst may not be over for Household International, the property arm it acquired for $14.4bn in 2003 to capitalise on the housing boom.
snip
For now, the US Federal Reserve believes the damage can be contained. "I don't think there'll be a large impact on prime mortgages from the sub-prime market," said governor Susan Schmidt Bies.
However, she warned of a "hidden" problem caused by sellers pulling property off the market. " The percentage of homes where nobody is living in them is at a record level. So the potential for inventory correction is still very high," she said.
snip . . .
US mortgage crisis goes into meltdown
By Ambrose Evans-Pritchard
Last Updated: 1:15am GMT 24/02/2007
Panic has begun to sweep the sub-prime mortgage sector in the United States after the bankruptcy of 22 lenders over the past two months, setting off mass liquidation of housing loans packaged as securities.
Analysts say the housing bust is pulling America into recession, citing a 14.4pc drop in housing starts
The rapid deterioration could not come at a worse time for British bank HSBC, which has set aside $10.5bn (£5.4bn) to cover bad loans in the US.
The cost of insuring against default on these loans has rocketed in recent weeks, from 50 basis points over Libor to 1,200, raising fears that a credit crunch could spread to the rest of the property market.
Low-grade BBB-rated securities - measured by the ABX index - have crashed from near par of 100 in early November to 72.5 this week.
Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown. "It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults," he said.
California's ResMae Mortgage filed for bankruptcy last week as it struggled to cope with defaults on a $7.7bn book of sub-prime loans issued last year, while Accredited Home Lenders in San Diego warned that bad debts had reached 7.18pc of its portfolio.
HSBC chief executive Michael Geoghegan, who stepped in to take control of the US division earlier this month claiming "The buck stops at my door", has ousted top executives. But the worst may not be over for Household International, the property arm it acquired for $14.4bn in 2003 to capitalise on the housing boom.
snip
For now, the US Federal Reserve believes the damage can be contained. "I don't think there'll be a large impact on prime mortgages from the sub-prime market," said governor Susan Schmidt Bies.
However, she warned of a "hidden" problem caused by sellers pulling property off the market. " The percentage of homes where nobody is living in them is at a record level. So the potential for inventory correction is still very high," she said.
snip . . .