Housing Market Meltdown redux

Lacking time to post but here's the rundown:

The WSJ reports:
- "Mounting troubles in the market for risky home loans, together with weak economic data, rekindled investors' fears of a broader malaise..."
- "We're kind of back to panic mode," said Stephen Stanley, chief economist for RBS Greenwich Capital in Greenwich, Conn. "It definitely reflects concerns about the mortgage area and the possibility that it would feed more broadly into the financial system as well as the economy."

And in line what I suggested in my last post:
- "But some noted that problems among certain types of "prime" borrowers -- specifically those who had taken out loans with adjustable interest rates -- were an ominous sign. The data "show that mortgage credit-quality problems go well beyond the subprime sector," wrote Jan Hatzius, chief U.S. economist at Goldman Sachs in New York, in a research note."

This problem looks like it truly goes beyond sub-prime borrowers and includes the many prime borrowers who were sold/convinced/conned into taking out exotic mortgages that they couldn't afford. As they roll-over to higher rates, they find themselves less able to maintaint payments and more likely to default.

It's not just individual borrowers who are getting squeezed however. It's also the big players on Wall Street who facillitated this borrowing binge. New Century, a leader in sub-prime lending, owes billions around the Street (It leaves one wondering what the Banks' exposure to other players is):
- New Century said yesterday that, starting last Wednesday, it had received a wave of default notices from its major Wall Street creditors, and may owe creditors a combined $8.4 billion for mortgage repurchases. [$2.5 billion is owed to Morgan Stanley alone].

The Banks are now trying to get money bank from the sub-prime lenders who they financed. But as in any traditional "run on the bank"scenario, the aggressiveness with which they are trying to recoup their losses in only further hastening the downfall of many of the sub-prime lenders. As such the Banks are likely going to have to right off a large number of these loans - taking a significant hit to their own bottom line:
- When it is unable to claim its money or believes it will be unable to, HSBC must write off the loans. In 2006, the bank said the loan-impairment cost totaled $6.68 billion for its main U.S. consumer finance business. That was 34% higher than in 2005. The bank has said it may take two to three years to work through its problem loans.