MBS Bond Holder Bath, Just Starting

Standard & Poor's said it may lower ratings on bonds from 11 different securitizations of home loans made last year, more than doubling the number of its warnings on bonds of so-called Alt A mortgages.

Almost 437,500 foreclosure filings were reported in Q107, a jump of 35 % Yoy. 50% of the foreclosure activity charted in Q1 was from subprime loans and 50% from Alt-A & Prime. Vs Q4 - Q1 foreclosures +27%.

"It's not just low-end homes that are going into foreclosure," RealtyTrac commented. "We're seeing a rising percentage of foreclosures with an estimated market value of more than $750,000."

More than $6 trillion of mortgage bonds are outstanding, dwarfing the amount of U.S. government debt by about 50%. About 66% of mortgages get turned into bonds, up from 40% in 1990.

Driving around Riverside County's Lake Elsinore, realtor Abdul Syed counts about 40 lots with brown grass in the 1,200- home Tuscany Hills subdivision. Owners stop watering their lawns when they are about to lose their homes, he said.

"All of these people are probably in default and probably going to face foreclosure really soon," said Syed.

The owner of 16 Ponte Russo paid $650,000 for the Mission- style house in November 2005 and got financing for 100 percent of the price from a subprime lender owned by Lehman Bros.

The owner never made mortgage payments. Now, the house is on sale for $496,000 following a foreclosure. Syed said. `"That's a great deal. The banks must be getting kind of desperate."

Foreclosures in California have quadrupled since September to $2 billion. More than 43% of the bonds sold by Lehman Bros are based on property in California.

Riverside County, CA saw a 300% increase in foreclosures. Lehman Brothers the #4 U.S. securities firm, used Riverside loans as collateral for $1.5 billion of bonds sold in January 2006.

Some of the lowest-rated portions of those securities now trade at 63 cents on the dollar. That's a 37% loss to the greedy bond holders who rather than the banks that sold the loans, will be taking the bath.

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