The Morning Report
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The bad news for the mortgage industry just keeps on coming. The following news items have surfaced over the past few days:

  • Bear Stearns, purveyor of the two troubled hedge funds that invested in subprime-backed CDOs, announced an estimate of both funds’ post-meltdown valuations. The more “conservative” of the two funds is deemed to be worth 9 cents on the dollar; the second fund is now entirely worthless. That investors were apparently hoping to recover 50 cents on the dollar should demonstrate how difficult it is to estimate the value of these complex credit derivatives even if one is trying hard to do so (which not everyone does). A more detailed yet very concise overview is available at the excellent blog HousingWire.
  • The Federal Reserve announced that it will team up with assorted federal and state regulators to perform compliance reviews of subprime-oriented lenders. It sounds like they may be looking to start enforcing the lending guidelines they have released in the past year.
  • Per my constant harping that this isn’t just a subprime problem, ratings agency Moody’s is looking to downgrade mortgage-backed securities backed by Alt-A loans (which are generally risky loans made to non-subprime borrowers).

Of course, all this takes place mere days after the credit ratings agencies caused a scare by announcing new methodologies for rating mortgage-backed credit products. As you may recall, that announcement was referred to as a “death warrant for the subprime industry” by Dow Jones Marketwatch’s apparently excitable Washington bureau chief. I don’t know if the more recent items qualify for “death warrant” status, but they certainly aren’t good news for those industries that grew too dependent on the last few years’ collapse in lending standards.

— RICH TOSCANO

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