Interest Rate Roundup

Friday, December 08, 2006

Why Ownit is a potentially huge deal

Evan as the housing market started deteriorating late last year, an interesting thing happened -- conditions in the mortgage bond market did not. The excess "spread," or interest rate cushion that buyers of mortgage bonds demand over Treasuries stayed relatively flat ... and even declined for a time. In other words, mortgage bond investors were exhibiting little fear about defaults surging ... losses rising ... and all that.

This is changing, fast. Ownit's demise ... and other reports of a rapid deterioration in mortgage credit quality, which I've been chronicling here ... appear to be putting some fear in the heart of subprime mortgage bond buyers. This development definitely bears watching. IF lenders are forced by the secondary mortgage market to tighten loan standards, it could exacerbate the downturn by making it tougher for marginal buyers to obtain mortgages to purchase homes.


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