Securitizers Who Created Housing Bubble Are Now Hiding Big Losses

25 de abril de 2007

<body><div id="article"><tr><td height="28" valign="middle" width="184"></td><td valign="middle" width="185"></td></tr><h1>Securitizers Who Created Housing Bubble Are Now Hiding Big Losses</h1><p>April 25, 2007 (EIRNS)--The next few months are likely to see extremely large securities losses breaking out in "mortgage-backed securities" (MBS) which have been the international banks' essential tool in creating the now-exploding U.S. and other housing bubbles. These losses, which various investment bank reports are now estimating at up to $100 billion, may, in fact, be much larger than that as the fall in home prices accelerates. They will hit those banks, and commercial banks as well, exposing how worthless are the large part of their assets which are based on the mortgage bubbles.</p><p>Bloomberg news service on April 24 reported a Merrill Lynch estimate that the MBS of 2006, the most hyperinflated bubble year, have now sunk in value by up to 37%. The large bond fund Pacific Investment Management (PIMCO) estimated losses at about $75 billion. <i>New York Times</i> columnist Gretchen Morgenson reported Lehman Brothers' estimate that MBS securities losses so far are $20 billion, but will rise during 2007 to 11-13% of the entire outstanding volume of "subprime" mortgages, which is over $1.5 trillion.</p><p>Since 2005, two-thirds of all mortgages have been "securitized," sold by the lending companies to investment banks which in turn package and sell them as high-profit securities, building a huge mortgage bubble over $15 trillion. Half of all the banking system's assets are now real-estate mortgage-based.</p><p>Since the investment banks' MBS markets are unregulated, the hedge funds, banks, and other funds holding these securities are so far succeeding in hiding these huge losses, simply because the credit rating agencies have obliged them by not "officially" downgrading the falling mortgage securities. This thin wall will collapse soon, and the crash will be on, as the fall in home prices nationwide gets serious.</p><p>The real plunges in market value of homes are still to come in future months. The National Association of Realtors ruefully reported on April 24 that March's U.S. existing-home sales fell by 8.4% from February (the largest month-to-month drop since 1989), and are down 11.3% from March 2006. The median existing-home price in March was still only 0.3% below March 2006, and 0.9% below for single-family homes. But the separate Schiller/Case home sales report, says that March prices in the 20 largest metro-area markets, were 1.5% down from March 2006; the unsold inventory of homes rose from 6.8 to 7.3 months. "No bottom in sight for the housing market," was one S&P analyst's response to the unexpectedly large drop.</p></div></body>