Financial Times The Short View By John Authers
The Short View By John Authers
Copyright The Financial Times Limited 2007
Published: March 14 2007 02:00 | Last updated: March 14 2007 02:00
If you had never heard of Accredited Home Lenders of California before yesterday, there is no need to be ashamed. A subprime lender, specialising in lending to those with poor credit histories, it was briefly last year worth a little more than $1bn. But it has lost
90 per cent of its value since, and this has, quite remarkably, had global repercussions.
Forex traders for two of the biggest global banks arrived at work in Asia and in London to find the news that Accredited was "exploring various strategic options" at the top of memos from their strategists outlining the market for the day.
The US Mortgage Bankers Association's quarterly reports on delinquency rates also do not normally rank among major market-moving indicators. That changed yesterday when the MBA announced that subprime delinquencies had increased to 13.33 per cent in the fourth quarter. The news turned a poor day for the European stock markets into a bad one, as bourses sold off to suffer falls of more than 1 per cent. The same happened in the US.
Yesterday's reaction revealed more about current perceptions of risk in the market than about the underlying US economy. Delinquency rates for the larger "prime" mortgage sector increased, but remain at only 2.57 per cent - not significantly up from their 2.47 per cent level a year earlier. Accredited is not big enough to spark a crisis on its own.
So why the fears? Yesterday's retail sales data, which disappointed traders, showed that the US consumer cannot be taken for granted. The fear is that problems in the mortgage market will damage consumption as a whole.
Research from Guerite Advisors cites data from Freddie Mac, one of the central US mortgage lenders, to show that prime home equity withdrawals grew from an average of 0.55 per cent of gross domestic product for most of the 1990s to reach 2.93 per cent of GDP in the second quarter of last year. Freddie Mac expects this number now to drop sharply.
It is too soon to tell how fast this will drop - but this, rather than the subprime problems, could determine whether the current difficulties turn into something worse.
Copyright The Financial Times Limited 2007
Published: March 14 2007 02:00 | Last updated: March 14 2007 02:00
If you had never heard of Accredited Home Lenders of California before yesterday, there is no need to be ashamed. A subprime lender, specialising in lending to those with poor credit histories, it was briefly last year worth a little more than $1bn. But it has lost
90 per cent of its value since, and this has, quite remarkably, had global repercussions.
Forex traders for two of the biggest global banks arrived at work in Asia and in London to find the news that Accredited was "exploring various strategic options" at the top of memos from their strategists outlining the market for the day.
The US Mortgage Bankers Association's quarterly reports on delinquency rates also do not normally rank among major market-moving indicators. That changed yesterday when the MBA announced that subprime delinquencies had increased to 13.33 per cent in the fourth quarter. The news turned a poor day for the European stock markets into a bad one, as bourses sold off to suffer falls of more than 1 per cent. The same happened in the US.
Yesterday's reaction revealed more about current perceptions of risk in the market than about the underlying US economy. Delinquency rates for the larger "prime" mortgage sector increased, but remain at only 2.57 per cent - not significantly up from their 2.47 per cent level a year earlier. Accredited is not big enough to spark a crisis on its own.
So why the fears? Yesterday's retail sales data, which disappointed traders, showed that the US consumer cannot be taken for granted. The fear is that problems in the mortgage market will damage consumption as a whole.
Research from Guerite Advisors cites data from Freddie Mac, one of the central US mortgage lenders, to show that prime home equity withdrawals grew from an average of 0.55 per cent of gross domestic product for most of the 1990s to reach 2.93 per cent of GDP in the second quarter of last year. Freddie Mac expects this number now to drop sharply.
It is too soon to tell how fast this will drop - but this, rather than the subprime problems, could determine whether the current difficulties turn into something worse.
posted by Carlos T Mock at 8:20 AM
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