Interest Rate Roundup

Thursday, August 10, 2006

It just keeps getting "better" in subprime land

Another day, another "subprime" mortgage lender reporting dismal loan performance. This time, it's Fieldstone Investment (FICC), a relatively small player in the business. The 30-day delinquency rate in its mortgage investment portfolio ballooned to a whopping 7.2% as of June 30, up from 6.1% just one quarter earlier and 4.7% a year ago. FICC also talked about how the secondary market for high-risk loans, especially high loan-to-value second mortgages, continues to tighten.

You can read more here, if you like. Suffice it to say this is a major, major problem brewing behind the scenes. I followed the mortgage market back in 1998 at That's when the Long-Term Capital Management debacle caused the secondary market for mortgages to seize up. Subprime lenders couldn't sell off their loans (especially the 125% LTV seconds that were that period's "hot" mortgage), they didn't have enough cash on hand to survive, and many went belly up.

Even without a LTCM-magnitude debacle, this nascent credit tightening is definitely something to keep an eye on. The housing bubble is already popping ... through in tighter lending requirements resulting from a subprime industry mess and you've got a recipe for even slower sales. Food for thought.


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