Wednesday, August 1, 2007

Credit Market Fall-Out #15 – The Ripple Effects Continue

The ripple effects in the credit markets continue with more problems with Bear Stearns, insurance companies, and home mortgage companies. The following excerpts are from a WSJ article that gives a good summary of the current situation ans osme of the spillover effects.

The nation's weak housing sector sent another shudder through Wall Street, with insurers and lenders taking further hits and
Bear Stearns Cos. shutting off withdrawals from a mortgage-investment fund.

Traders said yesterday's stock-market selloff was ignited by a warning from
American Home Mortgage that pressure to repay its creditors may cause it to liquidate its assets. Its shares subsequently plunged 89% to $1.13. Several Wall Street firms have loaned money to American Home, the 10th-largest U.S. home-mortgage lender in this year's first half, according to Inside Mortgage Finance, a trade publication.

The insurance sector was also singed as two large mortgage insurers saw their share prices drop sharply after announcing that their stakes in a firm that invests in subprime mortgages had been "materially impaired." What spooked investors in
MGIC Investment Corp. and Radian Group Inc. was the firms' holdings in Credit-Based Asset Servicing and Securitization LLC. As of June 30, each insurer had more than $465 million of equity in C-BASS, which invests in mortgages and related securities.

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