Wednesday, February 07, 2007

Nelly on sub-prime mortgage losses accelerating.

It's getting hot in here, so write off all those loans.

Near the end of the recent US housing bubble enthusiasm, loan standards appear to have gone out the window. Now, the most vulnerable of those loans, in the sub-prime arena, are going bad at an increasingly faster pace. Combine this news with the warning from the CEO of JP Morgan, and I'd say you build a pretty good case for the housing market not yet having bottomed and for further interesting times ahead.

Although there is no way to predict exactly how this could play out, the general rule when you start to smell something burning in the financial markets is to reduce risk, make sure your bets are spread around, and not be afraid to let a little cash pile up.

Bloomberg: HSBC to Boost Loan-Loss Provisions on Bad Mortgages.


HSBC Holdings Plc, Europe's biggest bank, said it's setting aside 20 percent more than analysts estimated for loan losses in 2006 because the company's U.S. mortgage business is deteriorating.


Home loans to risky borrowers in the U.S. are going bad faster than HSBC expected just two months ago, the London-based company said yesterday in an e-mailed statement.


Home loans to borrowers with poor credit ratings or large debt burdens are defaulting at a faster rate than during the U.S. recession six years ago, according to calculations by Friedman Billings Ramsay Group Inc.

``The impact of slowing house price growth is being reflected in accelerated delinquency trends across the U.S. sub-prime mortgage market,'' HSBC said in the statement. ``It is clear that the level of loan-impairment provisions to be accounted for as at the end of 2006 in respect of Mortgage Services operations will be higher than is reflected in current market estimates.''