The crisis in the US mortgage market is gaining momentum
New Century Financial Corp., the second largest company in the mortgage lending sector for borrowers with a bad credit history in the United States, reported that banks are planning to stop financing it, which could lead to its bankruptcy. The New York Stock Exchange has suspended trading in shares of New Century. The crisis in the US risk mortgage market can affect the entire financial industry.
New Century Financial Corporation is one of the major players in the US high-risk mortgage market, along with Countrywide Financial, Ameriquest Mortgage, HSBC and Fremont General.
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The amount of risky mortgage loans in 2006 exceeded $ 600 billion, which is about 20% of the entire US mortgage market. In general, the volume of outstanding risk mortgages reaches $ 1.3 trillion. Against the background of the recent boom in the US housing market, credit organizations aggressively offered floating rate loans to customers at low initial payments, often without even checking their income levels. The increase in bank interest has led to an increase in the cost of servicing loans and, as a consequence, an increase in loan defaults. Loan defaults have reached record levels over the past seven years. In early February, HSBC reported that in 2006 the volume of unreturned risky loans of its US unit amounted to $ 10.56 billion.
“The market for risky mortgage loans is very dependent on the situation in the housing market and the labor market. Housing prices have begun to decline, the situation in the labor market is deteriorating, household income is declining, and, accordingly, people often have no opportunity to finance loans, which leads to an increase in the number of individual bank failures and deterioration of credit institutions, ”said RBC daily economist at Deutsche Bank Research Tobias Just.
On March 7, New Century began to receive notifications from creditor banks, in particular from Goldman Sachs, Citigroup, UBS AG and Barclays, about default. According to the company, it may be faced with the need to repurchase all of its mortgages totaling $ 8.4 billion, but does not guarantee that it will have sufficient funds. The company was on the verge of bankruptcy.
Last year, more than 20 high-risk mortgage lending companies went bankrupt, sold, or closed. Since the beginning of the year, the value of New Century shares fell by 95%, and yesterday the New York Stock Exchange suspended trading in its shares. The US Securities and Exchange Commission and the US Attorney’s Office in Los Angeles have launched an investigation.
Other companies in this sector also faced the need to buy out their mortgages. Yesterday Accredited Home Lenders Holding Co. reported that it was considering the possibility of attracting capital after it had to pay $ 190 million to investors. The news led to a fall in the company's shares on the Nasdaq by 46%, to $ 6.11, from the beginning of the year their price fell by 80%. Accredited also had to postpone the presentation of the annual financial report. The largest mortgage lending company USA Countrywide Financial Corp has published a statement that is minimally present in the market of risky mortgages, but expects fluctuations in financial results in the short term. At the end of last week, the Federal Reserve and the Federal Deposit Insurance Corporation launched a campaign to tighten the standards for providing mortgage loans.
The risk-taking mortgage crisis also affected banks — credit derivatives of the top five US investment banks — Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns — were trading at a level similar to Baa2’s Moody’s credit rating, which two levels above the “junk” bonds, which are not assigned an investment rating.
ANNA VOLKOVA
Source: RBCDaily
New Century Financial Corporation is one of the major players in the US high-risk mortgage market, along with Countrywide Financial, Ameriquest Mortgage, HSBC and Fremont General.
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The amount of risky mortgage loans in 2006 exceeded $ 600 billion, which is about 20% of the entire US mortgage market. In general, the volume of outstanding risk mortgages reaches $ 1.3 trillion. Against the background of the recent boom in the US housing market, credit organizations aggressively offered floating rate loans to customers at low initial payments, often without even checking their income levels. The increase in bank interest has led to an increase in the cost of servicing loans and, as a consequence, an increase in loan defaults. Loan defaults have reached record levels over the past seven years. In early February, HSBC reported that in 2006 the volume of unreturned risky loans of its US unit amounted to $ 10.56 billion.
“The market for risky mortgage loans is very dependent on the situation in the housing market and the labor market. Housing prices have begun to decline, the situation in the labor market is deteriorating, household income is declining, and, accordingly, people often have no opportunity to finance loans, which leads to an increase in the number of individual bank failures and deterioration of credit institutions, ”said RBC daily economist at Deutsche Bank Research Tobias Just.
On March 7, New Century began to receive notifications from creditor banks, in particular from Goldman Sachs, Citigroup, UBS AG and Barclays, about default. According to the company, it may be faced with the need to repurchase all of its mortgages totaling $ 8.4 billion, but does not guarantee that it will have sufficient funds. The company was on the verge of bankruptcy.
Last year, more than 20 high-risk mortgage lending companies went bankrupt, sold, or closed. Since the beginning of the year, the value of New Century shares fell by 95%, and yesterday the New York Stock Exchange suspended trading in its shares. The US Securities and Exchange Commission and the US Attorney’s Office in Los Angeles have launched an investigation.
Other companies in this sector also faced the need to buy out their mortgages. Yesterday Accredited Home Lenders Holding Co. reported that it was considering the possibility of attracting capital after it had to pay $ 190 million to investors. The news led to a fall in the company's shares on the Nasdaq by 46%, to $ 6.11, from the beginning of the year their price fell by 80%. Accredited also had to postpone the presentation of the annual financial report. The largest mortgage lending company USA Countrywide Financial Corp has published a statement that is minimally present in the market of risky mortgages, but expects fluctuations in financial results in the short term. At the end of last week, the Federal Reserve and the Federal Deposit Insurance Corporation launched a campaign to tighten the standards for providing mortgage loans.
The risk-taking mortgage crisis also affected banks — credit derivatives of the top five US investment banks — Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns — were trading at a level similar to Baa2’s Moody’s credit rating, which two levels above the “junk” bonds, which are not assigned an investment rating.
ANNA VOLKOVA
Source: RBCDaily
Source: https://habr.com/ru/post/5219/
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