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http://biz.yahoo.com/seekingalpha/07....v=1&printer=1
Many charts and links in the article.
Yes, I believe there will be a U.S. economic recession, but the elements are now in place for the first time in 80 years for America to sink into a depression. Should a depression unfold, there will be big name financial houses that will fail.
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Yesterday, there was much talk of the Sub-prime and Alt-A mortgage industry problems. One report I received today came from Credit Suisse, whose analysts opined that the problems will get much worse. I agree that this is a situation we must watch closely.
In the past five years, subprime purchase originations have more than doubled in share to approximately 20% of the total in 2006. Over this time period, subprime lenders eased underwriting standards in an effort to gain market share. Loans were made to first time homebuyers with little or no down payments, as 2006 subprime purchase originations posted an alarming 94% combined loan-to-value, on an average loan price of nearly $200,000. Even more distressing is the fact that roughly 50% of all subprime borrowers in the past two years have provided limited documentation regarding their incomes…
Given the recent credit deterioration in the subprime and Alt-A markets, and the likely fallout throughout the entire housing chain, we are of the opinion that there is a very real threat of “pent-up supply” that will hit the market in the next six-to-twelve months as a result of the lax underwriting standards of recent years.
The first two sections of the Credit Suisse report focused on providing a backdrop of the mortgage market, and how it has evolved in recent years. The authors discussed the mortgage products that are at greatest risk for increased scrutiny from regulators and highlighted some recent events and potential courses of regulatory action. They concluded that “while much of the focus in the next few months for the builders will likely be on credit tightening and how that will impact homebuyers’ ability to get financing, we do not want to underestimate the impact that rising foreclosures and delinquencies will have on the supply and pricing dynamics of the housing market.”
But rather than point to specific comments in the Credit Suisse report, I decided to pull a number of exhibits that hopefully will open your eyes as to the seriousness of the problem.
In a recent blog, I remarked that this data will come out and, unlike information that is produced by the U.S. Administration, it is the type of data that cannot be easily manipulated.
....
Yesterday, there was much talk of the Sub-prime and Alt-A mortgage industry problems. One report I received today came from Credit Suisse, whose analysts opined that the problems will get much worse. I agree that this is a situation we must watch closely.
In the past five years, subprime purchase originations have more than doubled in share to approximately 20% of the total in 2006. Over this time period, subprime lenders eased underwriting standards in an effort to gain market share. Loans were made to first time homebuyers with little or no down payments, as 2006 subprime purchase originations posted an alarming 94% combined loan-to-value, on an average loan price of nearly $200,000. Even more distressing is the fact that roughly 50% of all subprime borrowers in the past two years have provided limited documentation regarding their incomes…
Given the recent credit deterioration in the subprime and Alt-A markets, and the likely fallout throughout the entire housing chain, we are of the opinion that there is a very real threat of “pent-up supply” that will hit the market in the next six-to-twelve months as a result of the lax underwriting standards of recent years.
The first two sections of the Credit Suisse report focused on providing a backdrop of the mortgage market, and how it has evolved in recent years. The authors discussed the mortgage products that are at greatest risk for increased scrutiny from regulators and highlighted some recent events and potential courses of regulatory action. They concluded that “while much of the focus in the next few months for the builders will likely be on credit tightening and how that will impact homebuyers’ ability to get financing, we do not want to underestimate the impact that rising foreclosures and delinquencies will have on the supply and pricing dynamics of the housing market.”
But rather than point to specific comments in the Credit Suisse report, I decided to pull a number of exhibits that hopefully will open your eyes as to the seriousness of the problem.
In a recent blog, I remarked that this data will come out and, unlike information that is produced by the U.S. Administration, it is the type of data that cannot be easily manipulated.
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