Freddie Mac CEO expects subprime mortgage crisis to worsen Washington Mutual tightens mortgage lending How The Bad News Could Get Worse
Freddie Mac CEO expects subprime mortgage crisis to worsen – AP via Mercury News
The sharp decline of the subprime housing market offering high-cost mortgages hasn’t yet hit bottom, the head of home mortgage buyer Freddie Mac said Friday.
The number of home buyers starting such loans peaked last year, and interest rates for those buyers are due to rise in the next few years, which could cause foreclosures to spike further, Richard F. Syron said in an interview with The Associated Press.
"I don’t think it’s troughed yet, because of the class of 2006," Syron, chairman and chief executive of Freddie Mac, said before speaking at a housing conference. "The mortgages written in 2006 in the subprime market are probably the most troublesome. They haven’t hit the reset point yet on interest rates."….
Washington Mutual tightens mortgage lending – Reuters
Washington Mutual Inc. (WM.N: Quote, Profile, Research said it is making fewer subprime mortgages and emphasizing higher-quality loans to boost earnings and cut risk after its home loans unit lost $113 million from January to March.
The largest U.S. savings and loan said on Friday it is also significantly reducing loans that require little documentation of borrowers’ income or assets and second mortgages that let borrowers buy homes with little or no money down.
Seattle-based WaMu, as the thrift calls itself, is making the changes amid an industrywide increase in defaults and foreclosures at a time that home prices are stalling and homeowners find it tougher to refinance as interest rates adjust higher…..
How The Bad News Could Get Worse – BusinessWeek
With the Dow Jones industrial average once again setting records, it’s tempting to think the subprime mortgage mess that roiled stock and bond markets in February and March is over. But late in the evening of Friday, Apr. 20, came a jarring sign that things may be getting worse, not better. Credit experts at Moody’s Investors Service (MCO ) projected that average losses on pools of subprime mortgages from 2006 would be as much as 8%, one-third higher than what they expected just six weeks before….
The stock market lost ground on the Monday following the announcement but gained it back quickly. Perhaps that’s because investors have already sorted through most of the possibilities and decided the odds are against worse trouble unfolding.
But some experts caution that there’s a possible scenario that’s worth mulling, even if it’s unlikely. It’s not the familiar threat of foreclosed homes depressing house prices and hurting the economy by deep-freezing consumer spending and construction. Rather, it’s a disease that would spread through the channels of modern finance, starting with unprecedented delinquencies on subprime and other adjustable-rate mortgages. That would force the rating agencies to issue widespread downgrades of mortgage-backed securities, and that would set off downgrades of the collateralized debt obligations (CDOs) that bought those securities. The downgrades and subsequent losses could prompt investors to back away from the broader debt market, slowing corporate loans and leveraged buyouts—a big support for stocks in the past few years. "It could force a fairly significant leverage unwinding [and even] some degree of global liquidity crunch," says Christian Stracke, a senior analyst at CreditSights Ltd., a research service for institutional investors…..
More Subprime headlines: Wall Street Folly: Subprime Meltdown
Do you think the FED would consider raising rates to stop Inflation, so it can cut rates down the road when the economy clearly begins to slow? Otherwise we are looking at a real potential for Stagflation.