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Collateral Damages (Is The U.S Real Estate Doomed?)

by Open-Publishing - Thursday 5 July 2007

Trade-Exchange Rates USA

Collateral Damages

Many Wall St.’s top deal makers must have butterflies are starting to float around the stomachs as we write this update: all our fears are coming true. All of them… this week there was an avalanche of dire warnings like ever seen before. As of June 28 BofA Analyst said that mortgage correction just ‘tip of the iceberg’ :

_scheduled to reset in ’07, followed by approximately $680 billion in ’08. Furthermore, of these ARMs, we estimate that subprime loans consist of $400 billion (78%) in ’07 and $500 billion (73%) in ’08…

One of the scariest headlines was that found on Bloomberg.com

S&P, Moody’s Hide Rising Risk on $200 Billion of Mortgage Bonds… “You’ll see massive losses from banks, insurance companies and pension managers,’’ said Joshua Rosner, a managing director at investment research firm Graham Fisher & Co. in New York and co-author of a study last month that said S&P, Moody’s and Fitch understate the risks of subprime mortgage bonds. “The longer they wait, the worse it’s going to be.’’ … Losses may rival the savings and loan crisis of the 1980s and 1990s. The Resolution Trust Corp., formed by the U.S. government to resolve the thrift crisis, sold $452 billion of assets at a cost to taxpayers of about $140 billion…`Massive Downgrades’: A sweeping downgrade of bonds would lead to sales of assets by investors, banks and pension funds who operate under rules that would cause them to adjust their portfolios to reflect the new ratings. S&P, Moody’s and Fitch have restricted their ratings changes on BBB- rated mortgage bonds to 1.3 percent of those outstanding, according to Credit Suisse analyst Rod Dubitsky in New York. About 80 percent of the remainder will eventually have their ratings reduced, he said…“We’re talking about massive, massive downgrades here,’’ Dubitsky, the No. 2 asset-backed real estate debt analyst in last year’s Institutional Investor magazine poll of researchers, said in a telephone interview. S&P abandoned seven-year-old criteria for determining a bond’s protection against default in February…

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