More Americans own homes than ever before, 69% in fact. Which really means that banks own more homes than ever before. And more and more people are defaulting on those mortgages.
Subprime loans are those made to borrowers with less-than-perfect credit histories. The U.S. $1.2 trillion subprime mortgage market is in jeopardy as loan performance continues to deteriorate due to increasing delinquencies, hedge fund losses, and slashed ratings on billions of dollars of subprime securities.
Chrysler and Alliance Boots are two companies seeking financing for buy-outs. But banks were unable to entice investors to finance either deal, even at higher interest rates. A credit crunch is underway.
Countrywide Financial, the US’s largest mortgage lender, saw a 33 percent drop in profits. CEO Angelo Mozilo said the housing market is so bad the top ten mortgage lenders will have to merge or they’ll go out of business. Mozilo’s a smart man: in the last year he’s netted some $380 million from selling Countryside stock.
According to Bloomberg radio, monthly issuance of CDOs - Collateralized Debt Obligations, a fancy name for packages of debt instruments - recently dropped 93% from $42 billion to just $3 billion, a significant tightening of liquidity.
With people not able to sell homes, not many people are buying them: weekly mortgage applications dropped 3.6% last week.
And with banks not lending and the stock market maybe going down, getting capital is getting tough these days. Depression on the horizon? Maybe. But not for Angelo Mozilo.