HOME PRICES MAY FALL 20% AMID BAD LOANS
April 13th, 2007A quick passage from my Wall Street Chop Shop story is in order here:
The firm externalized the financial risks of being in this business by selling all of the paper they generated into the secondary mortgage market at the end of every month. This is an institutional marketplace that trades in commoditized mortgages, “debt paper.” In other words, at the end of each month, the firm had none of the impossible-to-payback-negative-amortization-no-money-down loans on their books!
Now, note the part below in bold and keep this in mind: It wasn’t just hedge funds and mutual funds who were buying this crap. How do I know? When I was working for that paper mill, I simply asked a person in Secondary Marketing, “Who buys this stuff?”
Think big, household name banks.
Via: Bloomberg:
Kenneth Heebner, manager of the top-performing real-estate fund over the past decade, said U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages.
Subprime loans, made to borrowers with a history of missed payments or untested credit, and “Alt-A” loans, which require little or no documentation, account for about $2.5 trillion of the $10 trillion in outstanding mortgages, according to Moody’s Economy.com. As much as 40 percent of these loans may default, flooding the real estate market, Heebner said.
“It will be the biggest housing-price decline since the Great Depression,” Heebner, 66, said today in an interview in Boston. Prices may fall by a fifth in some markets, he said.
…
Fallout from subprime-loan defaults will also hit hedge funds, and to a lesser extent, mutual funds, that bought collateralized debt obligations and other securities backed by such mortgages, Heebner said. The investment banks and brokerage firms that package and sell these products won’t get hurt because they have passed on the biggest risks to the investors, Heebner said.
“They know the product is toxic; they’re not going to get caught,” Heebner said.
20%? That’s it? Sounds kinda rosy to me…if oil spikes like all the peakers say it’s going to things will be way worse than that. Glad I covered my ass.
Looks like all those ‘paper millionaires’ as I like to call them are going to start seeing their ‘millionaire’ status quickly vanish as their home’s net worth starts sinking like the Titanic
Off Topic – Sorry, didn’t know where to put this:
I would add that the struggle to take down Wolfowitz at the World Bank is more than it appears to be. Does anyone believe that a World Bank President is not usually allowed to give large raises to employees who will sleep with him? Isn’t that the whole point of being a NWO corporate honcho? No World Bank President has ever received any elite disrespect, much less open mutiny. Why is this even in the papers? Something more is afoot, big people want Wolfie removed. My guess is internecine high financial strife between the neolibs and the neocons. Strange days.