Some Perspective on the Sub-Prime Lending Meltdown

By Dan Melson on March 15, 2007 3:45 PM | Permalink | Comments (0)

This is really more of an investment related article than mortgage or real estate.

Class-action lawyers pounce in US subprime crisis

"We are considering litigation, no question," he said. "We have already had numerous discussions with some very, very large pension systems throughout the country on this."

I would look into investor lawsuits aimed at the managers who invested in these bonds. There wasn't any shortage of people warning that these were not solid investments. I was one of them. But I guess these managers dominant philosophy was out of, "How to Look Like a Financial Genius for Six Months (and an Idiot Forever)."

On the other side, Bear Stearns profits up, calms subprime jitters

But even that article has a warning:

But in that turmoil is a big opportunity for Bear Stearns and other Wall Street investment banks. Molinaro said he expected to see large, bulk sales of distressed mortgages over the next several months.

Subprime mortgage troubles could still spread pain but probably not recession

"We're seeing a lot of pain. We're not seeing carnage," Costello says.

Subprime alone won't sink Wall Street bankers

Subprime loan business accounts for just 3% of Lehman's revenue, and the current troubles translate into a potential hit to earnings of just 4%, according to an estimate published by Bank of America analyst Michael Hecht. Bear Stearns, which reports its results today, has the largest earnings risk at 5%. But most of the others have an even more trivial 2% earnings exposure, Hecht found.

One editorial I largely agree with:

Mortgage lenders can't claim that no one told them so

And one with it's head largely you-know-where:

Opposing view: The market is working

Spin, spin, spin. Whip the rats faster, we must not be spinning enough.

One thing I fervently hope: This mess results in some industrial strength disclosure requirements for negative amortization and stated income loans. I personally would like to see increased disclosure requirements for ARMs in general, as well as interest only loans. And I'm talking about plain language explanations right up front when people apply for the loans. If you can't sell the loan and the property with a frank discussion of what's going on, you shouldn't be selling either the loan or the property.

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