Clampdown on risky mortgages

The Wall Street Journal had an interesting article today by James Hagerty and Ruth Simon titled “Lenders Broaden Clampdown on Risky Mortgages.”

In it, they highlighted that “Jittery home-mortgage lenders are cutting off credit or raising interest rates for a growing portion of Americans.”

As they say, “This worsening credit crunch threatens to put further pressure on the housing market.”

The mortgages being effected aren’t just subprime, but also included so-called Alt-A loans, a category in between prime and subprime. This illustrates how the credit crunch impacting the subprime market is spreading to other markets.

The articles quotes Thomas Lawler, a housing economist in Vienna, Va, who said the credit squeeze “will further crimp the effective demand for housing, and will make the late summer home-sales season even worse than the dismal spring season.”

Also, American Home Mortgage Investment stopped making loans earlier this week and said late yesterday it would cease most operations and lay off over 6,000 employees. Accredited Home Lenders Holding is almost in as much trouble after auditors said its “financial and operational viability” is uncertain.

In other words, the so-called “contained” credit market squeeze continues to impact more and more markets and businesses. It’s my guess that it will take years for this situation to fully work out and that players in the credit markets will see record stress before it’s all over.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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