Crisis Looms in Market for Mortgages

[UpInArms]

http://www.nytimes.com/2007/03/11/business/11mortgage.html?hp

On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.

What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.

The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.

Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending.

Investment manias are nothing new, of course. But the demise of this one has been broadly viewed as troubling, as it involves the nation’s $6.5 trillion mortgage securities market, which is larger even than the United States treasury market.



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[BlueManDude]

1. Everyone's at fault here - the lenders, the regulators and the borrowers.

[fed-up]

2. these unscrupulous loans drove up property taxes, drove out seniors and gave unearned

updated for typos and grammatical errors

income to state coffers, painting a rosier picture for the economy than was justified.

While these loan sharks raked in the money, many seniors in states without regulation on property tax increases were forced out of their homes due to rapid, unaffordable increases in property taxes. Luckily CA has Prop 13.

I just spoke to someone that thinks Schwarzenegger is great because CA is rolling in the money. I explained that the increase in funds was due in part to homes selling for double what they did 5 years ago which more than doubled property taxes people were paying-sometimes increases of property taxes paid to the state were 40 fold if the house was sold due to an aging parent dying (house originally cost $20K, sold for $800K).

This may be a reason that states were not active in clamping down on these fixed-adjustable loans. Heck if more houses sold and the property taxes were reset at current value that just meant more money for the state. They didn't give a damn about the now 3 MILLION homes (nationwide) in the process of foreclosure.

I hope all those loan companies go belly up!

[bemildred]

3. Stop calling them "analysts" dammit! They are salesmen.

Their job is to convince you to buy. Their opinions are worth doodle, and intentionally so.

[mia]

4. Another thread on this article...

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x385758

[MLFerrell]

5. October 1929 anyone?

[Karenina]

6. Not. Looking. Good.