Skip to comments.Q: How Big Is the Subprime Mortgage Market? A: Not Very Big at All
Posted on 08/09/2007 12:48:38 PM PDT by Leroy S. Mort
Currently there are about 44 million mortgages in the U.S., and less than 14 percent of them are subprime. And only about 13 percent of those are late on payments, with the majority of late payers working through their problems with the banks.
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Leverage is all about using something small to move something big. The small subprime market unto itself is as you indicate...however, as this markets debacle filters thru the worldwide system, measurable effects will be seen worldwide..these effects are commented on everywhere...’ripple effect’ is what will define the relative importance of the subprime meltdown. Ripple effect has not reached its peak yet.
All the markets are presently under the full and complete control of computer trading systems or individuals with a lot of money, or simply aggregations of day trading pajamahadeen wannabees.
A French bank this morning stopped payments from a French bank regarding accounts with less than $3 billion.
That's chump change.
Still, world markets reacted in panic.
At the same time it rained across the cornbelt this week from Nebraska, through Iowa, Illinois, Indiana and Ohio creating the mother of all bumper crops of corn. Even ethanol futures dropped.
There was a time that rain would have rattled world markets.
I think even the Chinese are on vacation in August these days.
Big French fund affected by US subprime meltdown..here is link..many foreign funds are doing the same thing..this is just one..http://www.bloomberg.com/apps/news?pid=20601087&sid=aNIJ.UO9Pzxw&refer=worldwide
Just like I said on the other thread, it doesn’t matter what the market share is, because this mess is having a real effect on the global markets.
Yes, there is some panic in the world markets..that is how crashes occur. A little disaster causing panic out of all proportion to itself is the leverage principle in action. Hope this ‘subprime’ failure does not cause panic and destruction out of all proportion to itself...the issue is playing out and has not reached its peak yet.
Some attempts at propaganda are thin on their face. Little teeny banking interests like GS, MER, LEH, and BSC are taking all this in stride. Why, just today, the Fed threw $24 billion into the market and the ECB threw “unlimited” funds into their markets. So, there’s nothing to worry about. Especially when talking about the single topic of “sub-prime”. But the topic is a tad larger than “sub-prime”, it includes “alt-A” and it also isn’t strictly a matter of mort defaults: It is the systematic realization that virtually ALL credit has been based upon putting lipstick on a pig for a few years now. And, a very significant amount of the market’s recent advances have been based on these relentless corporate buyouts....buyouts for which the funding is likley to become quite a bit tighter.
And as I keep saying, the bulge in the curve as to mortgage resets will be occurring Sept-October this year. So, the S hasn’t completely hit the F yet.
Extremely vulnerable are high-yield money market accounts, which are likely invested in mortgage backed securities. You can argue with me about anything else, but these funds are nothing if not highly vulnerable.
But that is market psychology working to clear out the lending excesses, and nervousness about how some of the banks and hedge funds that aggressively invested in these products are now feeling the pain.
The markets are punishing people for bad economic/financial decisions, just as they are supposed to. Corporate earnings for most sectors, job growth, personal income statistics, are all in good shape.
The latest link from Bloomberg:
Yup, a long time. When Ahab promised to pay 6 bulls next year to Ma-Nu and poured copper into the bull mold to show good faith, the whole house of cards began to crumble.
That works out to 80,000 mortgages that are late. Assuming a 200,000 mortgage, that works out to about $16 Billion that is late.
The question is ... can the economy handle a $16 Billion default?
Folks are naive who believe this is just a SUB PRIME market issue, its not. Originators are having trouble finding buyers for A paper... Jumbo lenders are pulling out of the market.... This is far bigger than just SUB PRIME... and those that think its just SUB PRIME are fools.
Add to what you just said (which is all true) that much of the sub-prime slime has been packaged into CDO’s/CDO-squared with the deliberate goal of hiding the “toxic waste” debt in a composite package with AA-grade debt.
When the subprime components blow up, the buyers of the AA-rated CDO are waking up and saying “We bought what?!”
Yeah, ripple effects. That’s how global warming is supposed to work, right? I drive an SUV, the CO2 emissions trap sunlight, the polar caps melt, and we all drown.
Its not about defaults, its about ability to sell the assets.
The buyers are drying up, for all mortgage backed securities... REIT’s and others are moving away from the market. Without buyers for the paper, money available for mortgages evaporates... and you wind up with just funds of the lending institution tied up in the loans so they will cut back and lessen lending, raising rates, further eroding home values, and the value of already existing properties and paper... etc etc etc..
This won’t happen as fast as the tech bubble, but its impact will be far far broader.
BNP Paribas, of Oil For Food infamy...Go figure.
Are you kidding? The S&L industry was estimated to be $400 billion when it went under (of course, that was way over-hoopla-ed, just like this market is). We barely noticed it.
“The question is ... can the economy handle a $16 Billion default?”
If it’s a $16B problem then why did the Fed and ECB throw $100B combined at it in one day! Obviously someone’s arithmetic is way off.
It is having an effect because rich individuals who gambled in hedge funds that went bust are screaming to cause panic in the markets in order to pressure the US government to bail them out. I say to the public keep calm because these rich individuals will go bankrupt and other rich individuals who did not play in the hedge funds will buy out their assets. Everything will re-adjust and life will go on. This is the time to put a little into the stock market indice funds a nibble at a time as the market drops to the bottom. Five years from now when the credit bubble resolves itself and disappears into the past, your investments will rebound substantially. The losses by wealthy individuals and investment banks are substantial, but it will not trigger an economic collapse like the one in 1929. When rich people and major institutions make dumb mistakes, they always try to panic the public and pressure the government to bail them out. Keep calm, buy low so you can in the future sell high.
It sounds like you have a bad case of class envy.
“because these rich individuals will go bankrupt and other rich individuals who did not play in the hedge funds will buy out their assets”
Those “rich” people are evil anyway.
“From each according to his ability, to each according to his need”
I say, take their money, houses, cars and give it to the working man.
......I think even the Chinese are on vacation in August these days.....
Which could mean the second and third stringers chained to their cibicles got rattled when the first stringers are away.
Always ~ everywhere.
In an enviroment of decreasing home prices, lenders are not going to accept the risk of foreclosures at loss. Since today, lump sums and high credit scores will be mandatory to buy an house.
Subrime loans represent 14% of the mortgage market, with 14% of buyers kicked out, real estate will spiral down,as well as new constructions, with the loss of millions of jobs in all the related sectors. Enough for a recession.
Guess the 'Breck Girl' gave them bad advice.
Yes...we are still in the summer doldrums. There's always some doom-and-gloom story to make the market tank in the summer.
Watch the market rebound to 14000 in Sept.
“This wont happen as fast as the tech bubble, but its impact will be far far broader.”
From here, and given what is already priced in to the mortgage co’s and home builders, what sectors would be vulnerable as the ripple effect expands?
However, knowing the way the future works, I could have lost 58% just as easily.
We had a group of 'em move in down the street ~ stupid landlord ~ they mistook all the ME types here for Latino I guess ~ surprise.
Anyway, they're complaining already about NO WORK IN THIS AREA ~ on their ever present cellphones they use to scarf up jobs.
In this part of town (Springfield/Annandale/Alexandria) most of the "undocumented tourists" are from Korea and Pakistan, as are the legal immigrants who hire them for major construction work.
They don't hire Latinos unless they are Salvadorans without criminal records anyway.
Just exactly what idiot sent those guys out here to be unemployed!?
Money is going to tighten across the board, affecting liquidity and capital access across the board.
As to the next stocks to watch beyond the immediate mtg, banks and REIT’s and direct real estate stocks... I’d expect to see downturns in the suppliers markets.... basically if they sell the parts to build or maintain homes their stock is going to go down...
Folks don’t go to Home Depot when they rent... they don’t fix up their bathrooms if they can’t make their mtg payments...
Our entire economy is based on real estate in some fashion its intrinsic value is the underpinning of every other industry. IF its value declines and declines rapidly, the ripples will be shockwaves throughout the entire economy.
It is not class envy, hedge funds are played by people with serious money to risk. What galls me is that they know the risk when they put their money in, and when the fund goes bust they are screaming for government bailout and going to court suing the funds. Their complaints would be legit if the funds deliberately did something fraudulent or illegal. Most of the panic you see in the media reports are caused by these rich risk takers who turn out to be sore losers and trying to use their contacts in the media to create panic and ultimately pressure on the government to bail them out.
I saw the same arguments when the Savings and Loans went under due to lack of tight regs and scaming buyout artists who brought the banks and used them to finance their personal pyramid scheme to buy and speculate real estate. There was no bailout, the government set up a special commission to auction off all the S&L assests and holdings and within five years the system recovered. All the panic you see is MSM hype and the rich banks/individuals who lost money in the hedge funds trying to create public hysteria to pressure the government to bail them out. Tightening up the loan requirements will stabilize the real estate market and eliminate the speculating that has distorted the pricing, and fueled the loan scams that the mortgage companies perpetuated on the banking system. Other cash rich institutions and prudent investors not caught up in these scams and games will simply move in and buy up all the assests of the bankrupted ones. Market will correct and move on creating new winners as it buries the losers.
Bear Stearns just had two hedge funds go bankrupt. Where was the bail out? All you talk about is rich people and the bad things they are doing with no proof, just assumptions. That’s why I say you have class envy.
Let me do the math for you. 13% delinquent of 14% of the mortgage market is LESS than 1% of the TOTAL mortgage market. The subprime market is in serious trouble; the TOTAL mortgage market is not.
Things may well get worse but the evidence is not there yet. Things may well get much better too. Smart money is betting on the latter. Look at the homebuilder stocks today. YMMV.
The real fools are the doomsayers who have no information to back up their “sky is falling” claims. We’re doomed! We’re doomed! Oops forgot CAPS ON. Fools! Fools! Oops, shorts! shorts!
The feds are increasing the money supply and are under pressure to drop the interest rates. Investment bankers are already burning the phone lines screaming at their contacts in Wash DC that the losses are huge and unless the feds provide some relief they will cause more panic by pressing the media and etc. Give it time and you will see the senators/reps representing San Francisco, Chicago and New York City (center of US finances) demand the feds to do something to provide relief.
You’re behind the times. Central banks around the world are already pumping significant amounts of cash into the system. They did it yesterday and they are doing it agian today.
Some say that the aftermath was one of the causes of the early 90s recession.
The S&L disaster was not remotely the scope of this one.
I have never said the economy was doomed, of course the economy will eventually recover, its cyclical, but this will cause a downturn and a big one.
Yes. Because of fear -- market psychology is again driving this. Its an issue, for sure, but I believe this is a long overdue repricing of credit risk.
No facts to back it up?
Well lets just see whats been going on in the last 2 weeks shall we? You think its simply sub-prime.. ok then...
Here we go:
Nice article about how money is exiting the mortgage markets completely, not just sub prime, but ALL mortgage paper has become difficult to move, A, Full Doc, buyers are bailing on mortgage backed securities of all types, not just sub prime.. and its impacting GLOBAL markets, not just the US and not just Sub Prime.
Mortgage problems in AUSTRALIA
How this is effecting credit conditions around the globe! Not just in mortgage industries, and not just in the west.
Alt-A loans which are well qualified buyers who cannot document income, or do not wish to jump through hoops to document all income (Generally Higher Income, Entrepeneurs and the like) are now having difficulty getting loans on houses.
Lehman rates the current credit tightening a 7 out of 10 (10 being the worst) Forecasts are now at $200 BILLION in losses to investors and homeowners... the S&L Crisis was about 125 Billion... and frankly I think the estimates are LOW.
You can cover your eyes and think this is just some minor thing, feel free, but the facts are out there.. you choose to ignore them, that’s up to you.
Will the economy eventually recover? Sure... but this isn’t some blip on the radar, and its going to get far far far uglier, before it gets better.
To an extent yes, but its not just market psychology.
I just posted estimates are this whole shakeout currently is estimated at about $200 BILLION in losses (and personally I think these estimates are low very low)... to put it in context, the S&L debacle was about $125 BILLION in losses.
So those that think this is some minor blip or is not going to have broad and lasting implications are misinformed or naive.
This is going to get much much uglier, before it gets better.
Losses to hedge funds, largely, though, no? I realize it is affecting corporate borrowing ability and even higher quality mortgage pools at the moment, but my guess is that this will be relatively short-lived.
To the extent that fundamentally good companies are still earning profits and making good products, this contagion represents an opportunity for long term investors. These companies will again have access to capital debt markets when investors realize the baby is now out with the bathwater. But, it may get uglier, first who knows...
Having been around for the 87 crash, the late 90s Asian contagion, the 2000 Nasdaq absurb bubble, the corporate malfeasance adventures of 2002, etc., I believe the market pendulum swings too far upward, then downward.
Maybe this time is different, but I’m guessing not. These CDO meltdowns and liquidity problems are an issue, but I don’t see it as a worldwide economic disaster like proclaimed on the front pages of some papers, and by traders and hedge fund managers who are now getting burned after convincing themselves that there truly is no longer any credit risk in the markets. That the markets have grown too sophisticated.
It reminds me exactly of the “new economy” and “New metrics” BS that was being spewed before the Nasdaq tanked.
This is all rather irrelevant. The reaction has been real regardless of the veracity of the threat. Banks have locked accounts, inter-bank lending rates have gone up and markets have reacted. Good luck selling the guy that just lost money that it’s not a real problem.
And now the ugliness of Illegal Immigration will rear its head.
Sure, when the economy was humming along and jobs were plentiful for them to scoop up, at least they were contributing something.
Now that the jobs are drying up, they aren’t going to leave the country. After all, they’ve hit the jackpot by making it into the US with all of the gubmint entitlements.
The repricing of loans will most likely do the following. The homebuyer will decide if the house is worth the monthly payment. If he had a 3% loan that gets raised to 9% because he shouldn't have had the loan in the first place, he must decide if he can, or even wants to pay the extra money. If he lives in a house that is up in value, he might just pay the money.
Lets say his value has gone down or he just can't pay. The difference in this time and the Carter years is,......he has a job! He can throw the keys at the repo man, go across the street and get the same house, or more, for less money now. When Carter was president, we had DOUBLE DIGIT unemployment, and DOUBLE DIGIT inflation, and DOUBLE DIGIT( 13%-20%) housing interest rates. saying there is a problem at 4.6% unemployment, or a 5.25 interest rate with inflation at 2% is ludicrous. These people "loosing" their houses, most likely will have another in a flash. In Carters day, it took years( and Reagan) to work out the excess.
What we have now is a rise in home pricing that was built on easy money. To say a house is worth $150, $300, even $900 a square ft is built on what you can get rather than what it costs. There are houses in my city that go for less than $50 a square ft. I would gladly sell my home for $60 a sq ft right now! To build a home would cost $60-$80 a sq. ft. If you live in Miami or Las Vegas, you have a job, you have been paying your payments on time, they should allow you to reprice at 7% or so if you have good payment history. If they won't then you bail, give them the house, and move somewhere else, BECAUSE YOU HAVE A JOB. The loan people HAVE A HOUSE, even if it's 50 cents on the dollar, it's not ZERO, as the market is trying to suggest, so they aren't going to go under. The one left holding the bag is going to be the home builders, because we are going to have a house glut for awhile. They may not survive if we don't need them to build houses for a year or two. They make their money when the house is sold, so they get NO income for quite some time. If they decide to lower their price, it makes the housing "dump" worse when you can move down the street and get a bigger house for less money than you could a year ago. It doesn't cost $300 a ft to build a house, so there is plenty of room to go down. They will be hurting for awhile.
As I stated in my first paragraph, the saving grace here is 4% unemployment. Sure, there could be an uptick coming, but nothing like the 10% in the "old" days. Even if we went to 5% unemployment. that's more the rule than exception. People may only be willing to pay $50 for tennis shoes, instead of $200 and they may buy a Nokia phone instead of an iphone. Hardly the end of the world. I've seen the end of the world. It was when Carter was president.