Mortgages "Inextricably Linked" To Subprime
A tersely worded dispatch from Fitch Ratings put the future of the mortgage security holdings squarely on the back of subprime borrowers. "With U.S. subprime residential mortgage backed securities comprising 40%-60% of most diversified recent vintage structured finance collateralized debt obligations, the performance of SF CDOs has become inextricably linked to the performance of subprime RMBS and will be affected should the sector face deterioration."
"Fitch has observed an overall increase in interest only, junior lien, and limited income documentation mortgages which adds potential risk to subprime RMBS pools."
The firm further expects the outcome will depend on overall economic and price conditions. "Fitch maintains a Stable Outlook for the sector in light of continued economic improvements and home price appreciation, albeit at lower rates for 2005."
7 Comments:
As mentioned before, don't expect lenders to "catch religion" until one or several of these CMO pools blows up. Until then, expect more exotic mortgage products to continue to be introduced which in turn will extend the housing bubble.
My gripe is that most of the "lenders" are mutual fund clients and bank depositers who have no idea their money is being put into such crap. If you have a 401k with a money market or income fund you're probably one of the "lenders".
The entire financial network is like a big funnel taking every new dollar and most of the old ones and stuffing them into housing mortgages.
I am moving my money into a short term US treasury MM fund as I write this. I'm gettin' nervous.
The biggest joke in RE is the appraisal process. Home prices are not based upon any valid asset pricing model and the process is being conducted by those without adequate education.
The money market fund I was in owned things that I didn't even know what they were. I'm going to get the same yield (slightly lower, but offset by no state tax) in the US treasury only MM.
I am already at Fidelity, so I am getting the only one they offer which is SPARTAN US TREASURY MONEY MARKET (FDLXX). 7 day yeild is 2.24% (no state taxes though, and I am in CA). Easy to see why no one is saving money with these yeilds. They have made borrowing money to speculate so attractive.
Good info anon, thanks.
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