Just some info from chicken little..cluck...cluck..
Pay your share of subprime debt
By: ANN PERRY - Staff Writer
Think the subprime mortgage mess doesn't affect you?
Even if you don't own a home, or have never taken out one of these high-interest mortgages geared for borrowers with poor credit, you might need to think again.
You could own a piece of the multibillion-dollar market in risky mortgages ---- through your pension plan or a mutual fund.
As the bull market in housing rampaged between 2001 and 2006, Wall Street did not sit idly on the sidelines. It jumped in to enjoy the spoils.
Big-time investment companies, brokerage houses and mutual fund managers found several ways to partake: They bought shares in companies that made subprime mortgage loans to borrowers; they helped bundle the mortgages into securities that could be bought and sold, also known as CDOs, for collateralized debt obligations; and they added these securities to their investment portfolios.
With interest rates at historic lows in the earlier part of this decade, investment companies and mutual funds looked to higher-yielding mortgages to give their portfolios an income kick. Some major mutual fund companies, such as T. Rowe Price, American Century and Legg Mason Partners, invested in loans issued by subprime mortgage companies, according to a recent report by The New York Times.
Wall Street, with its insatiable need for growth and profits, provided the liquidity, or the cash, to keep the housing market revved up. Now that the cycle is unwinding ---- as subprime borrowers default and subprime lenders close up or consolidate ---- all of us could end up paying a price, though probably small or hard to pinpoint.
At a mortgage investment conference earlier this month at the La Costa Resort and Spa, executives with some of the biggest financial services companies in America were bemoaning that many subprime and other risky mortgages were going bad and could harm investors.
Those investors, one speaker noted wryly, "are probably your and my 401(k)."
We have only to look in our own neighborhood to find the evidence. Accredited Home Lenders, a publicly held Rancho Bernardo-based company that markets mainly subprime loans, has seen its stock tumble in recent weeks.
Some of those who could be sharing the pain are listed in the paperwork that Accredited is required to file with the Securities and Exchange Commission. As of Dec. 31, the biggest investors in the company included some hedge funds, major Wall Street brokerages and mutual funds, such as Goldman Sachs Small Cap Value Fund and Putnam Vista Fund.
Even if you didn't take out a subprime loan, you still might get stuck paying it off.
Contact Business Editor Ann Perry at (760) 740-5444 or
aperry@nctimes.com. Comment at nctimes.com.
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