Sub prime will be the dot com of 2007:
The sub prime mortgage market is sending shock waves through out the equity and bond markets. Many investors will ask what is all the fuss about. The answer is that the sub prime segment of the mortgage market has ballooned over the past four years as lenders scrambled to expand market share.
Sub prime mortgages are those that are issued to borrowers with less than attractive credit histories or mortgages that have extremely lax terms such as zero down payments. The explosion in sub prime mortgages generally happened in areas with substantial increases in home prices. The assumption being that the lender could justify the mortgage due to an anticipated increase in real estate prices which would protect their position.
Over half of all the mortgages currently out standing were issued in the last three years, and a large percentage of those would be considered sub prime. As real estate prices continue to soften over the next few months the number of defaults in sub prime mortgages will increase dramatically.
Investors have to be very careful going forward as it is not going to be easy to see which lenders will be most affected by the increase in default rates. Many of the major financial institutions have been funding the expansion in mortgages and will have substantial indirect exposure to this segment of the market.
The fall out from this huge increase in lending risk will hit a number of sectors of the stock market. Avoid any and all sub prime mortgage lenders, small regional banks and trusts and be very vigilant in looking at the details of loan loss provisions for any of the major lenders as well. The home builders and building supply companies are going to be hit hard as the number of homes for sale jumps due to foreclosure action. The retail sector will be hit as many borrowers cut down on consumption in an effort to hold on to their homes.
This is only the beginning of the slide in the financial services sector and the process will take months to complete and there will be a lot of tears shed before this is finished.
For more information go to www.campbellreport.com
Sub prime mortgages are those that are issued to borrowers with less than attractive credit histories or mortgages that have extremely lax terms such as zero down payments. The explosion in sub prime mortgages generally happened in areas with substantial increases in home prices. The assumption being that the lender could justify the mortgage due to an anticipated increase in real estate prices which would protect their position.
Over half of all the mortgages currently out standing were issued in the last three years, and a large percentage of those would be considered sub prime. As real estate prices continue to soften over the next few months the number of defaults in sub prime mortgages will increase dramatically.
Investors have to be very careful going forward as it is not going to be easy to see which lenders will be most affected by the increase in default rates. Many of the major financial institutions have been funding the expansion in mortgages and will have substantial indirect exposure to this segment of the market.
The fall out from this huge increase in lending risk will hit a number of sectors of the stock market. Avoid any and all sub prime mortgage lenders, small regional banks and trusts and be very vigilant in looking at the details of loan loss provisions for any of the major lenders as well. The home builders and building supply companies are going to be hit hard as the number of homes for sale jumps due to foreclosure action. The retail sector will be hit as many borrowers cut down on consumption in an effort to hold on to their homes.
This is only the beginning of the slide in the financial services sector and the process will take months to complete and there will be a lot of tears shed before this is finished.
For more information go to www.campbellreport.com
posted by Grant | 4:07 PM
0 Comments:
Post a Comment
<< Home