Sub Prime CDO Risk At All Time High
From Bloomberg, Sub-prime mortgage bonds had their worst week of the year on concern about the failure of two lenders, the slowing housing market and the ability of borrowers to repay the loans, derivatives based on the securities show.
Credit-default swaps based on an index of bonds rated BBB- and consisting of sub-prime mortgages made this year fell 2.3 percent, to 95.50 today.
Traders reacted after two sub-prime lenders, Agoura Hills, California-based Ownit Mortgage Solutions Inc. and Sebring Capital Partners LP of Carrollton, Texas, closed this week,
Sub-prime mortgage are made to people with poor or limited credit histories. Increasing concern about their ability to pay back loans typically leads to lower bond prices and higher yields, which can spur rising mortgage rates and stricter lending criteria for consumers.
Credit-default swaps are derivatives, which are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.
Defaults on adjustable-rate mortgages made this year to the riskiest borrowers and packaged into bonds surged 25 percent last month to the highest level for new loans in five years, Friedman Billings Ramsey Group Inc. said in Nov. 17 report.
There is a risk that sub-prime loans from this year will experience higher cumulative losses than the 2000 vintage, the worst-performing ever.
Poised to hurt the loans are weakening California job markets and the extent of ``payment shocks'' when the loans' rates begin to adjust.
Credit-default swaps based on an index of bonds rated BBB- and consisting of sub-prime mortgages made this year fell 2.3 percent, to 95.50 today.
Traders reacted after two sub-prime lenders, Agoura Hills, California-based Ownit Mortgage Solutions Inc. and Sebring Capital Partners LP of Carrollton, Texas, closed this week,
Sub-prime mortgage are made to people with poor or limited credit histories. Increasing concern about their ability to pay back loans typically leads to lower bond prices and higher yields, which can spur rising mortgage rates and stricter lending criteria for consumers.
Credit-default swaps are derivatives, which are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.
Defaults on adjustable-rate mortgages made this year to the riskiest borrowers and packaged into bonds surged 25 percent last month to the highest level for new loans in five years, Friedman Billings Ramsey Group Inc. said in Nov. 17 report.
There is a risk that sub-prime loans from this year will experience higher cumulative losses than the 2000 vintage, the worst-performing ever.
Poised to hurt the loans are weakening California job markets and the extent of ``payment shocks'' when the loans' rates begin to adjust.
Comments