Thousands more Americans may lose their homes soon, this time to a wave of high-interest subprime mortgage loans.
"In view of how the laws of probability have yet to be repealed, a steep jump by subprime mortgage loans share of total mortgage originations from the 9% of 1996 to 2000 to the 21% of 2004 to 2006 practically assured an upward shift in mortgage delinquencies, " wrote Moody's in a report Tuesday.
Beginning with subprime loans, mortgage backed securities proliferated as banks got hooked on quick easy profits and circular valuation models which never took in the possibility of a fall in housing prices.
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As we learned during the subprime mortgage crash, bad loans get sliced and diced, recombined and repackaged, into bonds whose contents are not always understood by the pension funds and insurance companies that buy them.
Just sort of quickly, on the homeownership front, this alone, and obviously we've just come through a period of significant financial reform, but the fact that African-American women, for example, were two, perhaps three times as likely to receive subprime loans, home loans, during the mortgage boom, is a very disturbing figure.
At the low end, subprime mortgage lenders who booked dubious loans in a hurry and tried to leave the scene before lawsuits followed.
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For example a US Treasury would have a very low risk weighting while Mortgage Backed Securities backed by subprime loans would by definition imply a higher risk weighting and thus a higher capital requirement.
GMAC's problems relate to its subprime mortgage lending, rather than defaults on car loans.
The "cooperation agreement" applied only to the firms' ratings on mortgage securities backed by subprime and other risky loans.
The collateral behind the mortgage portfolio, which includes no subprime loans, has "continued to perform well" since October, the firm said.
Mortgage backed securities comprised of toxic subprime loans had been spread throughout the world financial community by Fannie Mae and Freddie Mac.
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Likewise, rates on some subprime loans at the heart of the ongoing mortgage meltdown will come down slightly.
Specifically, the SEC alleges that Fannie Mae, formally known as the Federal National Mortgage Association, underreported the amount of subprime loans made to borrowers with weak credit histories.
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Shares in Countrywide hit record lows in recent days on persistent rumors that a bankruptcy was imminent, a condition brought on by the widespread spike in mortgage defaults and foreclosures, especially in subprime loans those made to borrowers with weak credit.
In addition, the legislation, if passed, may drastically increase the number of lawsuits surrounding the subprime mortgage industry if borrowers somehow prove lenders steered them into loans they couldn't repay.
The virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgage loans have further reduced the demand for housing, while foreclosures are adding to the already-elevated inventory of unsold homes.
Since nobody seems to know what is inside all those collateralized debt obligations and their kindred collateralized mortgage obligations--mega-investment pools that bundle subprime loans--2007 audited results should help bolster confidence when they're released sometime in the new year.
Others allegedly were steered into costly subprime loans, even though they could have qualified for a prime mortgage, the type of loan offered to borrowers with the best credit histories.
When Fannie and Freddie were finally taken over by the government in 2008, more than 10 million subprime and other weak loans were either on their books or were in mortgage-backed securities they had guaranteed.
The root cause of the crisis, Mr Pickel argues, is bad mortgage lending, not derivatives: swaps on subprime mortgages grew unstable because the loans themselves were dodgy.
Issuers of subprime RMBS are required to disclose historical performance information for past securitizations that contain mortgage loans similar to those in the RMBS being offered to investors.
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The problems began in the subprime mortgage market and they've been magnified by the way Wall Street packaged those loans.
Jim Johnson had received several favorable rates on loans for houses from Countrywide Financial, which is now the target of federal scrutiny in the subprime mortgage crisis.
On Friday, General Electric 's WMC Mortgage, the fifth-largest subprime lender, said it was putting a halt to no-down-payment loans, or loans to borrowers with credit scores below 600.
On Friday, General Electric 's (nyse: GE - news - people ) WMC Mortgage, the fifth-largest subprime lender, said it was putting a halt to no-down-payment loans, or loans to borrowers with credit scores below 600.
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