mnot’s blog

Design depends largely on constraints.” — Charles Eames

Tuesday, 6 December 2005


The End Is Nigh?

Bloomberg calls it;

In the U.S. bond market, the housing bubble has burst.

Bonds backed by home loans to the riskiest borrowers, the fastest growing part of the $7.6 trillion mortgage market, have lost about 2.5 percent since September on concern an 18-month rise in interest rates may force more than 150,000 consumers to default.

“We’ve been hearing about risks of a house price bubble, easy credit and loans to borrowers that really don’t qualify, and now in the last couple of months we’re starting to see things turn for the worse,” said Joseph Auth, a bond fund manager who helps oversee $135 billion at Standish Mellon Asset Management in Boston. “We don’t know if it’s going to be a hard or soft landing.”

In other words, “Timber!” They go on;

About 13.4 percent of all mortgages at the end of June were to borrowers considered most likely to default, such as those with high credit card balances, up from 2.4 percent in 1998, according to the Mortgage Bankers Association…

The amount of bonds backed by these high-risk loans has more than doubled since 2001, to a record $476 billion, according to the Bond Market Association, a New York-based trade group of more than 200 securities firms.

The market “will deteriorate as housing slows down,” said Christopher Flanagan, who runs asset-backed debt research at New York-based JPMorgan Chase & Co., the fourth-largest mortgage lender in the U.S. The amount of loans made next year may fall by as much as 25 percent, he said.

Emphasis mine.