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| Subject: The fit hits the shan | |
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Author: jw |
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Date Posted: 06:51:06 03/12/07 Mon In reply to: Oropan 's message, "Re: This debt bubble is about to blow!" on 08:03:26 03/08/07 Thu General Electric's WMC Mortgage Cuts Subprime Jobs (Update4) By Jody Shenn March 9 (Bloomberg) -- General Electric Co.'s U.S. mortgage unit will curtail lending and fire 460 workers, or 20 percent of staff, amid a rise in defaults by people with poor credit. GE's WMC Mortgage, the fifth-biggest subprime lender in the U.S., this week stopped making mortgages without down payments or to borrowers with credit scores below 600. WMC last year had $33 billion in new loan volume, according to industry newsletter Inside B&C Lending. ``We've realigned our resources to fit the size of the market,'' said Brandie Young, a spokeswoman for Burbank, California-based WMC. The lender is adjusting underwriting policies amid a ``fluid market,'' she said. More than 20 lenders have closed or sought buyers since the start of 2006 as consumers with spotty credit have trouble meeting mortgage payments. About 10.12 percent of subprime home loans in securities were delinquent by at least 90 days, in foreclosure or already turned into seized property on Dec. 31, up from 5.37 percent in May 2005 and the most in at least seven years, according to Friedman Billings Ramsey Group Inc. ``The economics of the subprime lending business are horrible,'' Matt Howlett, an analyst at Fox-Pitt Kelton Inc. in New York, said in an interview. GM, New Century General Motors Corp., the world's largest automaker, may take a charge of almost $1 billion to cover bad mortgage loans made by its former home-lending unit, according to Lehman Brothers Holdings Inc. New Century Financial Corp., the second-largest subprime lender, yesterday stopped accepting new applications as it works to re-establish financing to fund new loans it plans to sell after losing money last year. The Irvine, California-based company, which also stopped making loans without down payments, cut 300 jobs, or about 4 percent of its workforce, on March 2. Rising defaults may add more than 500,000 homes to a residential real estate market already beset by slumping prices, New York-based bond research firm CreditSights Inc. said in a March 1 report. ``What's happening is the front end of this wave of teaser- rate loans that are coming into full pricing,''U.S. Federal Reserve Governor Susan Bies said today at a risk-management forum in Charlotte, North Carolina. ``So what we're seeing in this narrow segment is the beginning of the wave -- this is not the end, this is the beginning.'' WMC Purchase Fairfield, Connecticut-based GE, the second-largest company by market value, doesn't break out sales of WMC, which is part of its GE Money consumer finance division. Total mortgages in the Americas accounted for 7 percent of about $6.2 billion in GE Money's annual revenue in the region last year, according to an October presentation to investors. GE Money overall contributed $21.8 billion of the parent company's $163.4 billion in total sales last year. GE bought WMC from private-equity firm Apollo Management LP in 2004 for an undisclosed amount. GE had exited the U.S. mortgage business in 2000 by selling its home-loan unit to San Francisco-based Wells Fargo & Co. Shares of GE fell 13 cents to $34.32 on the New York Stock Exchange. The shares are down 7.77 percent this year. The $33 billion in home loans made by WMC was up 5 percent from 2005 and included some Alt A loans. Young declined to say how much. Alt A loans fall just short of the credit standards of Fannie Mae and Freddie Mac, two government-chartered companies that purchase mortgages from lenders. Loan Breakdown About 59 percent of outstanding home loans are ``prime,'' about 27 percent are Alt A and about 14 percent are subprime, according to a Feb. 27 report by Banc of America Securities LLC. Subprime mortgages are given to people with poor or limited credit records or high debt burdens and typically have rates at least two or three percentage points above safer prime loans. They made up about a fifth of all new mortgages last year, according to the Washington-based Mortgage Bankers Association. About $640 billion of subprime loans were made last year, up from $173 billion in 2001, according to Inside B&C. Guidance to banks from regulators on subprime loan standards announced March 2 should reduce volumes because it calls for lenders to seek more proof of a borrower's ability to meet payments, according to Scott Valentin, an analyst at Friedman Billings, a securities firm in Arlington, Virginia. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net . Last Updated: March 9, 2007 16:29 EST >The numbers I've seen from economists say that the >total subprime mortages that might end up in default >is around 1.5%. The assumption you are using is that >all of them will default....that is where you are >going wrong. > >As for the couple with the $190,000 mortage and >$83,000 income. If they have a 30 yr. fixed, their >payments per year would be 13,668 and add 3000 >property tax and you get 17,268 per year. That's >around 20% of their income....well in the ballpark of >what is acceptable. I might add that they will get a >nice tax refund off those house payments. If they are >having trouble it's not because they bought too much >house. > > > > > > >> The article says it is 13%, compared to 3% just 7 >>years ago, 10% of the housing market is a huge amount >>of our economy, and this is on top of what already has >>declined, real estate is over a trillion dollars a >>year. >> >> As for the 83,000 a year having trouble with a >>190,000 mortgage, they have 2 children, we don't know >>if they have medical coverage from their job, or if it >>is sub-standard coverage, if it is 2 working parents >>there may be huge child care costs, do they live in an >>expensive metro area? It is possible these people >>need help, it is also possible they need to live in a >>real country where the government's responsiblity is >>to the people, not big business. >> >>>This will turn out to be not much. The subprime >market >>>is but a tiny percent of the total mortage market. >>>In fact, this will probably prove to be the bottom of >>>the real estate market and a good time to buy. >>>$83,000 income and a $190,000 mortage and can't make >>>the payment????? That person needs help but I not >sure >>>what kind!!!!!! >>> >>> >>> >>> >>> >>>> Looks like the bill is finally comming due, and >>our >>>>bubble economy is not prepared to handle it. If the >>>>real estate crash spreads to wall street, look out >>>>below! >>>> >>>>Lenders Take Beating in Subprime Fallout >>>>Monday March 5, 2:25 pm ET >>>>By Joe Bel Bruno, AP Business Writer >>>>Lenders' Stocks Take Beating As Investors, Worried >>>>About Defaults, Flee From Subprime Sector >>>> >>>> >>>>NEW YORK (AP) -- Mounting concerns on Wall Street >>that >>>>mortgage lenders might be hurt by increasing >defaults >>>>and delinquencies sent investors fleeing Monday from >>>>some of the biggest names in the industry. >>>>ADVERTISEMENT >>>> >>>> >>>>The meltdown among lenders that specialize in home >>>>loans to people with weak credit, known in the >>>>industry as subprime lenders, again ravaged stock >>>>prices. Financial institutions from Britain's HSBC >>>>Holdings PLC to subprime leader Countrywide >Financial >>>>Corp. sank amid reports of strained portfolios as >>>>loans went bad. >>>> >>>>The latest to rattle the markets was New Century >>>>Financial Corp., the nation's second-largest >subprime >>>>lender. The Irvine, Calif.-based company disclosed a >>>>criminal probe into the trading of its securities, >>and >>>>into the lender's accounting procedures. >>>> >>>>Already beleaguered investors were swift to react. >>New >>>>Century's shares lost 60 percent on Monday -- wiping >>>>$532 million from its market value. Wall Street, >>still >>>>wobbly after last week's huge plunge, also punished >>>>the rest of an industry blamed for loosening their >>>>lending standards amid an eroding housing market. >>>> >>>>"We see increasing evidence that this industry is >now >>>>in a downward spiral whereby each negative >>development >>>>fuels additional deterioration in key fundamentals >>>>including origination volume, pricing, credit and >>most >>>>importantly funding," Stifel Nicolaus analyst >>>>Christopher Brendler said. >>>> >>>>The troubles at New Century had been mounting since >>>>February, when it announced that it lost track of >how >>>>severely the loans in its portfolio were losing >>value. >>>>The company on Friday disclosed it is being >>>>investigated the Securities and Exchange Commission >>>>and the U.S. Attorney for the Central District of >>>>California on its accounting methods and the trading >>>>of its securities ahead of a Feb. 7 earnings >>>>restatement announcement. >>>> >>>>Investors who buy the company's mortgage loans in >the >>>>secondary market have been selling the loans back >>when >>>>borrowers default, New Century said. The company >said >>>>that because of accounting errors, it underestimated >>>>how many loans would be resold and how much value >>>>those loans would lose before ending up back in New >>>>Century's portfolio. >>>> >>>>Concerns of a meltdown at New Century include the >>>>possibility it will not be able to meet covenants >>with >>>>major financial backers, the company said. Subprime >>>>lenders enter into agreements with big banks to >>>>finance their operations. These backers require >>>>subprime lenders meet minimum financial targets, or >>>>face breaching loan agreements that would force >banks >>>>to pull out of the deals. >>>> >>>>This dragged down shares of some of the top U.S. >>banks >>>>and investment banks. >>>> >>>>Morgan Stanley Inc., which had a 5.5 percent stake >in >>>>New Century as of Dec. 31, dropped $1.33, or 2 >>>>percent, to $72.03. State Street Corp., with a 3.8 >>>>percent stake, shed 12 cents to $64.96. Citigroup >>>>Inc., with 3.5 percent stake, traded as low as >$49.56 >>>>before recovering to post a 27-cent gain, at $50.24. >>>> >>>>Other subprime lenders also tumbled. Countrywide >>>>Financial fell $1.03, or 2.8 percent, to $35.99, and >>>>is down about 14 percent since January. Novastar >>>>Financial Inc. shares plunged $2.17, or 30 percent, >>to >>>>$5.07, and are down about 40 percent this year. >>>> >>>>Higher U.S. interest rates and a stagnant housing >>>>market began to take their toll on borrowers who had >>>>been relying on the rising value of real-estate >>>>markets to help them refinance their mortgages. >>>> >>>>Last year, 13.5 percent of mortgages originated in >>the >>>>U.S. were subprime, according to the Mortgage >Bankers >>>>Association. This is up from >>>> >>>>2.6 percent in 2000. The subprime market accounted >>for >>>>about 20 percent, or $600 billion, of the $3 >trillion >>>>mortgage market. >>>> >>>>The New Century case is of particular concern >because >>>>of fears that trouble in the subprime business could >>>>spread to prime mortgages, causing pain for many >more >>>>lenders. Leading those concerns was HSBC, Europe's >>>>largest bank with significant operations in the >U.S., >>>>which warned in February its profits would be weaker >>>>because of subprime lending. >>>> >>>>The world's third-largest bank on Monday reported >its >>>>highest annual profit of $15.79 billion for 2006. >>>>Bad-debt charges jumped 36 percent to $10.57 >billion, >>>>roughly in line with expectations. >>>> >>>>Chief Executive Michael Geoghegan attempted to fend >>>>off criticism that the bank had provided loans in >the >>>>United States to people who were not in a position >to >>>>pay their debts. >>>> >>>>"This is not trailer park lending," Geoghegan said, >>>>adding that the typical HSBC Finance customer has >>>>average household income of $83,000, is 41 years >old, >>>>has two children and a home worth $190,000. "This is >>>>Main Street America." >>>> >>>>Concern about subprime exposure also has spilled >into >>>>major U.S. investment houses. Standard & Poor's on >>>>Monday downgraded Lehman Brothers Holdings Inc. and >>>>Merrill Lynch & Co., partly on subprime mortgage >>woes. >>>>S&P noted that subprime loans are a small piece of >>the >>>>company's overall assets, but was still concerned >>>>about recent market trends. >>>> >>>>Merrill Lynch fell 73 cents to $81.34, and Lehman >>rose >>>>9 cents to $72.19. >>>> >>>>Business Writer Jane Wardell contributed to this >>story >>>>from London. [ Next Thread | Previous Thread | Next Message | Previous Message ] |