HSBC, the world’s third largest bank warned that bad-debt charges will be higher than 20% than originally forecasted. HSBC has been a big player in the United States subprime mortgage market so this news comes as a big deal. Signs of credit deterioration have risen to a crescendo, HSBC is warning about $10.56 billion in provisions; meaning they have no idea how bad these loans will get. Essentially they are starting to line their ducks in row getting ready for the implosion of many loans; remember $1 trillion in loan resets are scheduled for this year.
On another front, subprime connoisseur New Century Financial Corporation (NEW) took it in the shorts on Wednesday when it announced that it will revise earnings estimates lower because it did not plan to set aside enough money to buyback subprime loans that will go bad. Whoops!
This little announcement sent NEW down by 17% in after hours trading. Suddenly it doesn’t seem like such a smart idea to lend money to people with bad credit; could this be that maybe bad credit means that people may not pay your money back? Amazing how all of a sudden credit standards matter.
Let us continue on in the world of Wonderland. The National Association of Roosters (NAR) issued the following:
"After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing home sales to gradually rise all this year and well into 2008," NAR chief economist David Lereah said in a statement.”
Wow, we hit the bottom with one quarter of down sales and now we’re back on track for year-on-year appreciation! Thanks for the informative update David. Who do we believe? Folks that are running scared from subprime mortgages such as NEW or the warnings from HSBC, the world’s third largest bank? These folks have no creditability in the face of the outstanding, ethical, and masterfully insightful NAR. Again, we should always listen to what realtors say because this is the truth. We are suddenly starting to see subprime lenders go down like moths heading toward the light. According to the site Mortgage Implode O Meter 20 subprime ravers are now down and out. Did someone just hit the third rail?
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3 Comments:
Credit reports? Hah! We in the real estate industry laugh at credit reports. A FICO is only a mere reflection of your ability to repay debt…who needs that!
since dataquick reports foreclosures as sales...for the loan amount(average downpayment was 2% in cali last year) their numbers may show the market stabilizing this year.there is never a shortage of irony in the real estate game.
Tom:
DataQuick reports always lag the market about 30 to 60 days (the time escrows close). This thing will slowly play out.
Dr. H
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