Post by unlawflcombatnt on Aug 8, 2007 21:05:54 GMT -6
In addition to a near shutdown in the issuance of subprime mortgages, Alt-A mortgages are also declining in issuance. Below are excerpts from an article from Financial Times discussing this.
Mortgage sector faces further tightening
By David Wighton, Saskia Scholtes and Michael Mackenzie
8/7/07
"Large parts of the stricken US mortgage market are facing further tightening in the supply of credit following the collapse of dozens of lenders and a buyers’ strike by investors in mortgage-backed securities....
Larger and less creditworthy new borrowers loans have become more expensive and harder to obtain.
Some types of borrowers can no longer get a loan from a mainstream lender at any price and the prospect of rate cuts by the Federal Reserve may bring little respite....
Rates on standard fixed-rate mortgages have steadily declined in the past two months....
But the picture is very different for mortgages that the lender cannot sell on to Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. Rates on mortgages above Fannie and Freddie’s cap of $417,000 have soared. According to Bankrate.com, the rate on a 30-year “jumbo” was 6.8 per cent, up from 6.6 per cent a week ago. Three months ago it was 6.1 per cent.
Lenders’ ability to sell mortgage securities on to other investors has been dramatically reduced in recent weeks amid severe credit market turbulence and reduced investor appetite for risk.
Investment banks sold $46.16bn of new mortgage-backed securities in July, down more than 65 per cent since the $135.26bn sold the previous month....
A rate cut from the Federal Reserve would help alleviate problems in the mortgage market, he said, as it would produce lower short term rates and thus enable banks to take advantage of lending money at higher longer term rates. “A steeper yield curve will encourage the lending process.”
However, rate cuts are unlikely to bring quick relief to the riskier parts of the market.
Soaring deliquencies in subprime loans to borrowers with weaker credit histories have prompted lenders to tighten their policies, partly in response to the demands of the regulators.
The slump in the supply of subprime loans has been followed by a sharp contraction in the provision of so-called Alt-A mortgages, which are deemed to fall between subprime and prime in terms of credit quality.
A large number of lenders specialising in weaker borrowers have gone out of business with the latest casualty, American Home Mortgage, filing for bankruptcy on Monday.
Impac Mortgage Holdings, a top 10 provider last year, said on Tuesday it had stopped funding all Alt-A loans. The company’s shares fell by a third.
Other big lenders, such as Wells Fargo and Wachovia, have cut back on supply of Alt-A loans through brokers and last week JPMorgan Chase increased its Alt-A rates by 125 basis points...."
Mortgage sector faces further tightening
By David Wighton, Saskia Scholtes and Michael Mackenzie
8/7/07
"Large parts of the stricken US mortgage market are facing further tightening in the supply of credit following the collapse of dozens of lenders and a buyers’ strike by investors in mortgage-backed securities....
Larger and less creditworthy new borrowers loans have become more expensive and harder to obtain.
Some types of borrowers can no longer get a loan from a mainstream lender at any price and the prospect of rate cuts by the Federal Reserve may bring little respite....
Rates on standard fixed-rate mortgages have steadily declined in the past two months....
But the picture is very different for mortgages that the lender cannot sell on to Fannie Mae and Freddie Mac, the government-sponsored mortgage giants. Rates on mortgages above Fannie and Freddie’s cap of $417,000 have soared. According to Bankrate.com, the rate on a 30-year “jumbo” was 6.8 per cent, up from 6.6 per cent a week ago. Three months ago it was 6.1 per cent.
Lenders’ ability to sell mortgage securities on to other investors has been dramatically reduced in recent weeks amid severe credit market turbulence and reduced investor appetite for risk.
Investment banks sold $46.16bn of new mortgage-backed securities in July, down more than 65 per cent since the $135.26bn sold the previous month....
A rate cut from the Federal Reserve would help alleviate problems in the mortgage market, he said, as it would produce lower short term rates and thus enable banks to take advantage of lending money at higher longer term rates. “A steeper yield curve will encourage the lending process.”
However, rate cuts are unlikely to bring quick relief to the riskier parts of the market.
Soaring deliquencies in subprime loans to borrowers with weaker credit histories have prompted lenders to tighten their policies, partly in response to the demands of the regulators.
The slump in the supply of subprime loans has been followed by a sharp contraction in the provision of so-called Alt-A mortgages, which are deemed to fall between subprime and prime in terms of credit quality.
A large number of lenders specialising in weaker borrowers have gone out of business with the latest casualty, American Home Mortgage, filing for bankruptcy on Monday.
Impac Mortgage Holdings, a top 10 provider last year, said on Tuesday it had stopped funding all Alt-A loans. The company’s shares fell by a third.
Other big lenders, such as Wells Fargo and Wachovia, have cut back on supply of Alt-A loans through brokers and last week JPMorgan Chase increased its Alt-A rates by 125 basis points...."