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Will America’s massive sub-prime real estate loans collapse to cripple the economy?

*Financial Times, by Richard Beales and David Wighton, February 13, 2007

“Concerns over risky US mortgage lending mounted on Tuesday as a key indicator of credit problems hovered at record levels, another small mortgage lender failed and a big homebuilder admitted borrowers’ difficulties could damage its business.

Investor worries over loans made to US borrowers with weak credit histories have grown since housing market activity slumped last year. They were thrown into sharper relief last week when two big lenders, HSBC and New Century, warned they had underestimated the spike in defaults on so-called sub-prime mortgages.

A credit derivative index tracking credit risk on sub-prime mortgage bonds has soared to a record high this week. The ABX index, based on bonds rated BBB-, has traded at levels approaching 1,000 basis points – up from 650bp a week ago and about 250bp last autumn.

Meanwhile, California-based ResMAE Mortgage filed for bankruptcy on Tuesday, becoming the latest in a string of sub-prime lenders to succumb. The company, which had backing from prominent investment firms Thomas H. Lee and Putnam Investments, said the sub-prime market had been “crippled”.”


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Monex Bullion Investor