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Credit crunch at low-end of mortgage market
http://www.marketwatch.com/news/story/big-banks-deciding-fates-trouble/story.aspx?guid=%7B08BF0083%2D33AD%2D47C7%2D9EDC%2D3AB1085BBE43%7D
Big banks control fate of subprime lenders
Merrill, J.P. Morgan pull back in credit crunch at low-end of mortgage market
SAN FRANCISCO (MarketWatch) -- A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. and J.P. Morgan Chase.
Several private subprime lenders, such as Ownit Mortgage Solutions, Mortgage Lenders Network USA and ResMAE Mortgage Corp., have already filed for bankruptcy protection after having financial lifelines cut by Merrill and other big banks.
The fate of other publicly traded subprime specialists, such as New Century, Novastar Financial and Fieldstone Investment, may also rest in the hands of big banks that have helped finance their recent rapid expansion, analysts said.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. While these loans remain a small part of the home lending industry, they've helped more people buy homes who previously couldn't afford it, helping to fuel a surge in housing prices in 2004 and 2005.
That's why the credit crunch in the subprime market is being so closely watched by investors, economists and policymakers. By cutting off access to credit for these extra buyers, demand for homes may fall further, depressing prices and fueling a broader slowdown in the U.S. housing market.
"This distress in the subprime area is a significant concern," Ben Bernanke said on Wednesday. While noting that the contraction has yet to reach a point where it will affect overall economic expansion, the Federal Reserve chairman said he's monitoring developments.
The warehouse banks, such as Merrill. J.P. Morgan Chase, Citigroup and Bank of America, are crucial to this process because they keep subprime lenders supplied with enough cash to help them make more loans immediately.
In recent weeks, warnings from banking giant HSBC Holdings and New Century have shaken subprime confidence further, sparking speculation that a major bank is aggressively making margin calls.
Accredited Home Lenders has had to come up with more cash after getting margin calls from some of its warehouse lenders, Stuart Marvin, executive vice president at the subprime specialist told analysts during a conference call on Wednesday.
ResMAE Mortgage Corp., which had quickly become the 20th largest subprime specialist in the U.S., filed for bankruptcy this week and said it plans to sell most of its assets to Credit Suisse.
Industry publication National Mortgage News said this week that Merrill Lynch has been making margins calls. A Merrill spokesman declined to comment.
In late January, J.P. Morgan Chief Executive Jamie Dimon noted rising defaults in some of its riskiest home loans and said the bank had largely exited the subprime business.
After the warnings from New Century and HSBC, warehouse lenders are probably now deciding which subprime originators to continue backing and which ones to drop, CFRA's Gast said.
"In the current liquidity environment, CFRA does not believe any lender is at low risk," he wrote. "All lenders are showing signs of credit quality deterioration."
"The long-awaited meltdown in subprime mortgage lending is now underway, and it likely has further to go," Richard Berner, chief U.S. economist at Morgan Stanley, wrote in a note to clients this week.
http://www.marketwatch.com/news/story/big-banks-deciding-fates-trouble/story.aspx?guid=%7B08BF0083%2D33AD%2D47C7%2D9EDC%2D3AB1085BBE43%7D
Big banks control fate of subprime lenders
Merrill, J.P. Morgan pull back in credit crunch at low-end of mortgage market
SAN FRANCISCO (MarketWatch) -- A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. and J.P. Morgan Chase.
Several private subprime lenders, such as Ownit Mortgage Solutions, Mortgage Lenders Network USA and ResMAE Mortgage Corp., have already filed for bankruptcy protection after having financial lifelines cut by Merrill and other big banks.
The fate of other publicly traded subprime specialists, such as New Century, Novastar Financial and Fieldstone Investment, may also rest in the hands of big banks that have helped finance their recent rapid expansion, analysts said.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. While these loans remain a small part of the home lending industry, they've helped more people buy homes who previously couldn't afford it, helping to fuel a surge in housing prices in 2004 and 2005.
That's why the credit crunch in the subprime market is being so closely watched by investors, economists and policymakers. By cutting off access to credit for these extra buyers, demand for homes may fall further, depressing prices and fueling a broader slowdown in the U.S. housing market.
"This distress in the subprime area is a significant concern," Ben Bernanke said on Wednesday. While noting that the contraction has yet to reach a point where it will affect overall economic expansion, the Federal Reserve chairman said he's monitoring developments.
The warehouse banks, such as Merrill. J.P. Morgan Chase, Citigroup and Bank of America, are crucial to this process because they keep subprime lenders supplied with enough cash to help them make more loans immediately.
In recent weeks, warnings from banking giant HSBC Holdings and New Century have shaken subprime confidence further, sparking speculation that a major bank is aggressively making margin calls.
Accredited Home Lenders has had to come up with more cash after getting margin calls from some of its warehouse lenders, Stuart Marvin, executive vice president at the subprime specialist told analysts during a conference call on Wednesday.
ResMAE Mortgage Corp., which had quickly become the 20th largest subprime specialist in the U.S., filed for bankruptcy this week and said it plans to sell most of its assets to Credit Suisse.
Industry publication National Mortgage News said this week that Merrill Lynch has been making margins calls. A Merrill spokesman declined to comment.
In late January, J.P. Morgan Chief Executive Jamie Dimon noted rising defaults in some of its riskiest home loans and said the bank had largely exited the subprime business.
After the warnings from New Century and HSBC, warehouse lenders are probably now deciding which subprime originators to continue backing and which ones to drop, CFRA's Gast said.
"In the current liquidity environment, CFRA does not believe any lender is at low risk," he wrote. "All lenders are showing signs of credit quality deterioration."
"The long-awaited meltdown in subprime mortgage lending is now underway, and it likely has further to go," Richard Berner, chief U.S. economist at Morgan Stanley, wrote in a note to clients this week.