Tuesday, January 02, 2007

Resolution Trust Company here we come!

Many pundits who predict market gains for 2007 have a caveat - "as long as the housing market doesn't crack". The housing market so far hasn't cracked, but it is making some unusual noises.

One place to keep an eye on is subprime loans and lenders. Subprime loans are loans made to questionable borrowers of one type or another, and to reflect their risk (at least in theory), they carry higher interest rates. The borrowers are a little iffy and these loans are usually the first loans to go bad as the economy softens. There were an orgy of these issued towards the end of the housing bubble enthusiasm we just experienced. The market for these already showed problems in 2006, so the fact this company continued to increase it's lending even in 2006 shows somebody was asleep at the till.

But the bigger question is: who's holding these types of loans, how much is going to go bad, and how will it hit the rest of the real estate market as these types of loans dry up further and foreclosed homes come on the market.

Calculated Risk: Mortgage Lenders Network stops loans.


The rumors are true. From Reuters: Mortgage Lenders Network stops loans, sets layoffs

Mortgage Lenders Network USA, a large U.S. subprime lender, said it has stopped funding loans and accepting applications for loans, citing deteriorating conditions in the mortgage market, and has temporarily laid off about 80 percent of its 1,800 employees.

Meanwhile, some lenders have been pinched by being forced to buy back loans they sold because of rising delinquencies, and as "warehouse" lenders pull credit lines, analysts said.

Unlike most subprime rivals, Mortgage Lenders increased its lending throughout 2006. It made $3.31 billion of subprime loans in the third quarter, ranking 15th nationwide, according to data from National Mortgage News.

The firm, however, said wholesale market conditions have "deteriorated dramatically" in the last two months.


The Resolution Trust Company, by the way, was the government owned agency that tried to clean up after the Savings & Loan debacle of the 1980's.