Mortgage Rate News

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.

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mortgage loan blog, subprime writedowns, mortgage market problems

Mortgage lenders are changing the way they do business right now, avoiding investments in packaged loans. Indeed, thanks to risky bank debt, many mortgage lenders are set to report rather dramatic fourth quarter 2007 losses in the very near future. This has mortgage lenders reconsidering how they do some things, reports Businessweek:

With defaults piling up, lenders have turned away from mortgages packaged and sold to investors and back to loans held on their books and those sold to Fannie Mae and Freddie Mac, the government-sponsored mortgage companies.

Doug Duncan, the trade group’s chief economist, said in a statement that banks are strong enough to keep making mortgage loans. A recovery “may take longer this time than it has in past financial crises, but a turn for the better still appears to be a good bet later in the year,” he said.

It’s good news that the losses won’t completely wipe out the Wall Street banks, since at some point someone still needs to be making home loans. However, the recovery may mean that lending standards remain in their tightened state for longer. And it could also mean that fewer borrowers will qualify for home mortgage loans in the future.

But for investors, it could present opportunities. The big Wall Street banks will likely recover, so it might be a good time to get stock at bargain prices. Just be careful. No one really knows what the stock market will do, and you want to choose a bank stock that will recover, not one that tanks even after the current crisis comes to an end.

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Wall Street banks, opportunities investors, investments

Many warned a couple of months ago that the next credit crisis would have to do with underdisclosed debt held by banks. Additionally, the subprime mortgage debt packaged by many Wall Street banks in securities with other types of debt is also causing problems that are coming to the surface in a big way right now. Bloomberg reports that New York and Connecticut are both investigating Wall Street banks for their practices:

Defaults on subprime loans have led to bankruptcies of lenders of such mortgages, such as New Century Financial Corp., roiling stock markets. Banks that packaged subprime loans as investments, such as Citigroup Inc. and Bank of America Corp., may have to write down billions of dollars when they report their next earnings, analysts said. New York and Connecticut are among at least a handful of states investigating the mortgage industry as foreclosures have risen nationwide. Blumenthal said his office was cooperating with New York Attorney General Andrew Cuomo “as we always do when our investigations have similar interests.”

Last summer’s subprime lending crash is sending ripples through the economy in a way that is likely to be felt at least through the end of 2008, if not beyond. Numerous attempts to instill “confidence” in the economy and in the stock market have failed, since “confidence” does nothing to actually address underlying problems.

Downsizing and bankruptcies affect jobs, and losses affect investors (including “regular folks” whose investments mainly consist of holdings in retirement accounts). Additionally, a slowdown in the housing market and the home equity loan business affects home improvement stores and stores that cater to household items.

Will current efforts address these problems? It is clear that a new outlook on debt is needed in order for the economy to recover.