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To: Cogito Ergo Sum who wrote (33330)	2/19/2007 7:46:33 PM
From: heinz44	Read Replies (1) \| Respond to of 78410

Mortage-loan alarm bells sound Sub-prime lenders could face shaky times in future Morris R. Beschloss Special to The Desert Sun February 16, 2007 -------------------------------------------------------------------------------- While most of the national concern regarding residential construction has been generated by the double-digit drop in housing starts and construction permits and the similar reduction of sales in existing homes, the rupturing of sub-prime mortgage loans may be a calamity in the making. With interest rates in general and mortgage rates in particular continuing to be sheltered by the unexpectedly heavy influx of overseas and domestic investments at all levels of the fixed income yield curve, little attention has been paid to the millions of adjustable-rate mortgages, especially those financed for lenders with questionable credit. But those alarm bells are now starting to ring louder with warnings from major mortgage banks, such as British-based HSBC Holdings and California sub-prime lender New Century Financial. HSBC was the first to sound the alarm last week by warning that the market for these risky loans was in greater trouble than originally anticipated; and that its bad debt charges will be 20 percent higher than forecast, exceeding $10.56 billion. Lenders in possible trouble Although HSBC is one of the world's largest banks, its exposure to America's sub-prime lending was greatly exacerbated by its purchase of consumer lender Household International in November 2002, at the bull peak of the credit cycle. This phase is rapidly ending, foretelling major troubles for the biggest mortgage lenders in the business. A major case in point is West Coast California sub-prime lender New Century Financial, a real estate investment trust, which now claims that accounting errors had caused it to lose track of how seriously some of its mortgage loans had been losing value. NYSE-listed New Century, whose stock has lost two-thirds of its value in the last year, has given notice to the Securities Exchange Commission that it is restructuring its 2006 statements. But this may only be the tip of the iceberg, as such major players as Deutsche Bank, Merrill Lynch and Bear Stearns all joined the parade of acquirers of smaller sub-prime mortgage lenders in the recent past. In the immediate future, even such banking giants as Bank of America and Countrywide Financial, who have discussed a link to form the nation's largest mortgage lending group, could be caught in the downward cycle. Disaster waiting to happen? What could set a real crisis in motion, however, is the possibility of mortgage interest rate spikes, which could be forthcoming any time soon. This would jeopardize the huge number of adjustable rate mortgage holders, which could cause a foreclosure panic, sending further shock waves around the American financial community. The magnitude of such a crisis could exceed the monetary implosion created by the savings and loan bank debacle nearly 20 years ago. If this were to happen, all bets could be off on the rosy scenario unfolding in most other aspects of America's gargantuan economy.