Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US housing market - Subprime lending sector spiraling south !

Housing-Market / Analysis & Strategy Jan 12, 2007 - 05:49 PM GMT

By: Money_and_Markets

Housing-Market

ContiFinancial ... EquiCredit ... The Money Store ... Southern Pacific Funding. Maybe you've never heard of them, but they were the subprime mortgage lending stars of the mid-to-late 1990s.

They specialized in making loans to borrowers with bad credit, little or no down payments, and a host of other problems. Once they made loans, they'd sell them off to Wall Street firms and other investors, who would help package them together into bonds — a process known as “securitization.” The subprime lenders would use the proceeds to make additional mortgages, and the process would start all over again.


The gravy train seemed unstoppable. The subprime lenders made billions of dollars worth of loans. The Wall Street securitizers got crazy rich. Then, just like that, it all came crashing down.

The major reason: Gunslinging hedge fund Long-Term Capital Management imploded in 1998. As its market bets went south, the firm lost billions of dollars. That, in turn, brought the market for high-risk debt to a standstill.

Investors soured on risky home loans. As a result, the subprime lenders found themselves in a vicious cash crunch — unable to get the funding they needed to keep the mortgage “production lines” running.

Lenders started dropping like flies, either going bankrupt or selling themselves off to larger institutions. Thousands of employees lost their jobs in the process. Delinquencies, loan losses, and foreclosures surged.

It was ugly. It was painful. And it just may be happening again ...

Subprime Market Meltdown, Part Two

The subprime lending collapse took a few years to sort out. Some thought the industry might never come back as strong as it once was. But starting in 2001, the Federal Reserve Board's easy money campaign breathed new life into the moribund sector.

New subprime lenders set up shop. Mortgage standards — which had been tightening — started to ease again. And when home values really started surging in 2002, all memory of the previous carnage seemed to fade away. Lenders fell all over themselves to help homeowners take advantage of their newfound wealth via cash-out refinancings, home equity loans, and more.

Before long, lending standards were completely thrown out the window. I wrote about many of the abuses as far back as April 2005 in a Safe Money Report article titled “How to Wade Through the Mortgage and Real Estate Cesspool.”

Then, this past July, I told you about a bunch of mortgage practices that were setting the stage for a major blow up. I explained that “stated” income mortgages, onerous fee structures, inflated appraisals, and other exotic mortgages were all conspiring to stick borrowers with sharply rising payments.

Now, it's all hitting the fan. The 15th and 16th largest U.S. subprime lenders are collapsing. Mortgage Lenders Network is shutting down its wholesale lending operations and furloughing 80% of its workers. Ownit Mortgage Solutions just filed for bankruptcy.

And the companies still doing business? Many of their stocks are freefalling:

  • Fieldstone Investment (FICC) dropped 23% in a single day in November, and it's lost about three-fourths of its value in a year.
  • Fremont General (FMT) has fallen almost 39% since last January.
  • Stocks like HomeBanc (HMB) and NovaStar Financial (NFI) are trading at their lowest levels in years.

Things aren't as bad as they were in 1998 ... yet. But if the steady selling in mortgage bonds turns into panic selling, it could get there — fast!

What This Means for the Housing Market ... and You

The recent action in the subprime industry just underscores what I've been saying for a long time: The housing bust will stretch its tentacles into many related markets.

A lot of people — both homeowners and investors — are going to get hurt. And it has not yet run its course.

Indeed, the nasty fallout in the subprime lending industry could even exacerbate the housing downturn. After all, one force that prolonged the housing bubble was the rash of ridiculously easy lending. Now that subprime lenders are starting to go belly up, the ones left standing are tightening their guidelines.

That's going to make it harder for home buyers and marginal borrowers to qualify for loans. This could weigh on the real estate market as we close in on the key spring home shopping season.

You can see why I think it's too darn early to pile back into housing and lending shares. Wall Street has been talking itself hoarse that the “bottom is in” for these stocks. But if the subprime meltdown spreads, bottom fishers could get filleted.

Meanwhile, if you're in the housing market, don't ignore these developments:

  • If you're trying to sell, you don't want to screw around. You have to get your price down to a level that will attract buyers, even if it bruises your ego a bit.
  • If you're in the market to buy a home, the ball's in your court. Don't be ashamed to make low-ball bids, ask sellers to pay your closing costs, or make even the smallest home repairs.
  • And take note — easy mortgage money will be drying up. Later in the year, buyers will probably need more cash reserves, a larger down payment, and fully documented income, especially if they have low credit scores.

Until next time ...

Mike Larson

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.MoneyandMarkets.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in