Saturday, January 27, 2007

troubled subprime markets..

Interesting article in WSJ talks about rising default and deliquency rates in subprime market. Excerpts:

The weak U.S. housing market has cut the value of some homes to below the amount the owners owe on their mortgages, making them prone to default. The risk is showing up in the subprime-mortgage market, which serves borrowers with the worst credit histories. Default rates in this market are rising.

Friday afternoon, the ABX-HE 06-2 index for buying protection on low-rated, or BBB-minus, subprime mortgage bonds stood at 90.34, down from 95.25 at the end of December and 98.2 at the end of November. It was the lowest level since this version of the index began trading in July. A decline signals that sellers of these insurance contracts are demanding larger payments to compensate for what they see as a higher risk of mortgage defaults, which would reduce the value of mortgage securities.

When home prices are rising rapidly, people who fall behind on their loans often can sell their houses for enough money to pay off their debt or else refinance into a less costly loan. In a weak housing market, it becomes harder to sell homes quickly or refinance. More people lose their homes to foreclosure.


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