what happen to mortgage lending stocks?

Question

will it go back up?

Answer 1

They may very well have bitten the dust. Remember the S&L fiasco back in the 80s. Well here we are again. S&L number 2. Will this country never learn? Why do I even ask? Obviously not. There is a chance, and more than a slight chance that this could be the start of something big. Hope not, but with out government, who knows.

First the mortgage lenders go. Next the big banks that lent them money go. Next there is unmitigated panic on Wall Street and 87 drop looks like small potatos. All of a sudden it is 29 all over again. Worse case scenario but not beyond the relm of possibilty.

Answer 2

Lending stocks are being affected adversely because investors anticipate many of the loans that these companies have made to home owners will be defaulted on or suffer from late payments. The reason for this phenomenon is that during the past two or three years mortgage lending companies issued loans based on very risky underwriting. That means they issued loans to people that were not "credit worthy" of those loans, either because the borrower's income did not support the obligation, or because the borrower had a high debt load. Either way, these companies extended risky loans which are now going bad, as reflected by the recent increase in default and foreclosure rates.

Will they go back up you ask? Eventually the risk will be priced out of these stocks and they will recover, but probably not for the next year or so since large numbers of the risky loans they extended will be adjusting to higher interest rates all through 2007 and 2008. Many of these loans were fixed for a short number of years, say 1-3 years, then adjust to current interest rates.

If you're interested in learning more I suggest the Calculated Risk blog. I provide a link below, in the resources window.

Answer 3

haha I love Frank's answer. brilliant. and I agree 100% CNBC sounds like a broken record- so does the Wall Street Journal- they just ran a full page spread on subprime lending yesterday- it was like dejavu.
ALSO- I think you might be asking about mortgage backed bonds...? In that scenario- mortgages are used as collateral to securitize a bond- and when underwriting goes soft and default results- the collateral is ineffective and no longer valid- thus leading to the collapse of the security.

Answer 4

It's called subprime. the people on CNBC won't shut up about it and it is really starting to anoy me I am not watching tomarrow if they say it one more time.