Carlyle Capital Default Spotlights Mortgage Market Problems
Just two days after a $200 billion Fed plan was announced to help home mortgage lenders liquidate their mortgage back securities, a huge mortgage bond fund is going down. Carlyle Capital mortgage bond fund is in default, and this is bringing the entire financial sector to its knees on the stock market.
The Carlyle mortgage bond fund isn’t the only slumping investment among home mortgage lenders. Countrywide continues its struggles (along with Bank of America), and Bear Stearns, an underwriting company is sliding rather dramatically. American International Group is dropping, and Citi is also struggling, even as it offers to fund some failing municipal bond investments.
Bloomberg reports on the huge spotlight Carlyle Capital is putting on mortgage market problems:
Carlyle’s default “puts a spotlight on the magnitude of the problem that exists right now in the credit markets,” Liam Dalton, chief executive officer of Axiom Capital Management in New York, which oversees $1.2 billion, said in an interview with Bloomberg Television. “The real economy is becoming very affected by what’s happening in the credit markets.”
What began with losses due to subprime writedowns on the stock market is quickly snowballing to all areas of the economy as mortgage back securities bloody venerable financial institutions. Top home mortgage lenders are finding themselves exposed to large amounts of risk, due greatly in part to their models (especially in the case of the Carlyle Capital mortgage bond fund) that include highly-leveraged investing.
Where do we go from here? I’m not sure there really are too many places to go. Economic stimulus is just a pipe dream at this point. The best you can do is cut back on your spending, hold on, and hope for the best. Between high oil prices and serious stock market issues (that will begin to affect the portfolios and retirement accounts of “regular folks”), a recession seems almost certain. If we’re not there already.
Tags: Carlyle Capital bond fund, mortgage bond fund, home mortgage loan, home mortgage lenders,
mortgage loan blog, subprime writedowns, mortgage market problems
