Why are investors frantic on 'another fitting time'?
GDP is up. The indexes be even positive. There be no further announcement on that time...
Investors chicken out much much too precipitate for '...nil..
Answers:
The souk movement is what it is. There really is no grounds bringing up the rear any of it other the culmination of adjectives the investors perception. Just be equipped and make out the trend and shift next to it.
...IT'S LIKE A DEER WHEN HE'S CAUGHT IN A HEADLIGHT...AND GEORGE IS AT THE WHEEL.
The GDP number be an mature number. Investors are more concerned something like the adjectives cutback than the one from closing Spring. There isn't really a true trend right immediately, stifled volume but volatile days ahead of the holidays.
1. We're running out of grease, which our reduction depends on.
2. The Las Vegas Strip is losing out to China.
3. The period of war contained by Iraq is going to suck adjectives the money out of our reduction.
4. The mortgage and housing market are collapsing.
We're screwed!
Okay this is the best explanation I've see so far:
Mortgage Meltdown -- Opportunities Abound... If You Know Where to Look
St. Louis Fed President William Poole said it all right: "As is repeatedly the grip, the bazaar's punishment of unsound financial arrangements have be swift, cutting, and in need prejudice."
You've possible see the headline. Subprime mortgage woes hold brought once untouchable stall funds to their knees, pushed over 70 mortgage lenders into liquidation, and cut sour financing for dozens of corporate takeover. These events, surrounded by turn, own sent shockwaves through financial market around the sphere.
Easy Come, Easy Go
What's going on here? It adjectives boils down to one simple certainty: homeowners are falling at the back on their mortgage payments. In reality, postponed payments on home loans to citizens next to poor credit histories reach a 10-year illustrious this year, according to Bloomberg. And the number of U.S. mortgages facing foreclosure, including those near evasion notice, rose +58% within the first partly of this year over duplicate length concluding year, notes firm RealtyTrac not long reported. The firm is forecasting that digit could rise to a +65% year-over-year increase by the bring to a close of 2007.
Most of the foreclosures enjoy be among subprime borrowers, but even prime borrowers next to well brought-up credit are falling aft on their payments. Countrywide Financial (NYSE: CFC), the nation's largest mortgage lender, just this minute reported that over 5% of home equity loans to prime customers be past-due at the lapse of June, up from 2% at the failure of June 2006.
The problem is compounded by the certainty that home sale are slowing and housing prices are falling across the country. That make it harder for individuals who can't put together their payments to trade their house or embezzle out a home equity loan to wage down their debt.
Meanwhile, adjustable rate mortgages (ARMs), which details for most subprime mortgages, be originally set at low teaser rates a couple of years ago but are immediately resetting to greater rates. Some associates can't afford to nick out a different mortgage at lower rates because mortgage companies enjoy tightened standards and very soon require larger down payments.
From Mortgage to Bond
How can homeowners who don't pay stale their loans enjoy such a big impact on corporate America? The answer lies contained by the form of mortgage-backed securities.
Mortgage-backed securities turn home loans into a peerless loving of bond. They don't provide a in safe hands, fixed income resembling other bonds. Instead, they provide investors a claim on the principal and interest payments made on the loans in the pool.
These mortgage-backed securities aren't backed by only just one mortgage, but instead by monthly mortgage payments from hundreds of mortgage holders. Mortgage originator similar to Countrywide market individual mortgage loans to investment bank approaching Lehman Brothers (NYSE: LEH) and Citigroup (NYSE: C) or governmental-sponsored agencies similar to Fannie Mae (NYSE: FNM).
These folks afterwards throw hundreds of mortgages into a pool, divvy up the pool into bonds, and flog the bonds to investors close to allowance funds, evade funds, closed-end funds, and mortgage valid estate investment trusts (REITs), among others. The alchemy of transforming plain mortgages into a layered mortgage-backed indemnity is call "securitization."
From Defaults to Dividend Cuts
Any pocket money default or delay affect the mortgage lender's bottom row. That's because mortgage-backed securities are "backed" by mortgages contained by the sense that the income they provide go up and down beside the currency flow provided from the principal and monthly payments made by borrowers. Most securities are back by a private insurer, but near's no guarantee the insurer will congregate the obligation.
When family stop paying down their debt, holders of mortgage-backed securities suffer. For example, Countrywide Financial said default on mortgage loans contributed to profits falling by close to a third -- from $1.15 a share a year ago to $0.81 a share in the most recent quarter.
Also, to report for a highly developed number of society falling at the rear on their loans or not paying them bad at adjectives, firms close to Countrywide must set aside more money for potential loan losses. Since these loan loss provisions appear on the income statement as an operating expense, they can shrink profits and dividend payouts.
To craft things even more difficult, tons mortgage REITs borrow money to settle for their lend deeds. This leverage (or borrowing) add another vein of risk. Here's why...
Downgrades and Margin Calls
Unlike various bonds, mortgage-backed securities are not actively traded, so here's no updated course to price them. Typically, the funds enjoy valued them at cost. In insertion, credit rating agencies resembling Standard & Poor's would assign like credit rating to the unharmed financial guarantee, even though high-risk loans be pooled near lower-risk loans.
Now, rising delinquencies (late payments) on home loans own reduced the meaning of residential mortgage-backed securities as investors shun these riskier investments. Meanwhile, credit rating agencies are downgrading billions of dollars worth of these securities, and that's forcing the funds that hold them to smudge down their plus on their stability sheet.
One type of mortgage-backed payment that have be especially underneath the gun is the "collateralized debt obligation" (CDO). That's because CDOs, which are somewhat resembling mutual funds, hold be among the biggest buyers of riskier subprime mortgage-backed securities.
The problem is the credit rating downgrades can trigger fringe call, gist lenders similar to Merrill Lynch (NYSE: MER) or Citigroup (NYSE: C) want more money because the securities that serve as collateral to backbone a chain of credit hold lost so much plus. Funds beside little brass on mitt to draw together requests by creditors may enjoy to supply assets to make higher dosh. The distress sale can set bad a vicious cycle, forcing other funds to reprice their assets, thus triggering more side-line call.
When these securities are dumped on the souk and sold at reduced prices, they -- and the funds that hold them -- can become subsequent to worthless. Bear Stearns (NYSE: BSC), for instance, not long told investors in two of its quibble funds they would win little, if any, money hindmost if they attempted to redeem their stake because of "unprecedented declines" in the helpfulness of their subprime mortgage securities.
The Good, the Bad, and the Ugly
With this depressing state of affairs, why enjoy we settled to aspect the shares of firms that stem, bunch, and invest in mortgage-backed securities? Because for the discriminating investor, the turmoil in the mortgage sector may enjoy created an excellent entry opportunity surrounded by select firms that are better positioned than their competitors to weather the current mortgage meltdown.
In identify these opportunity, we asked some switch question:
Does the loan portfolio focus on residential or commercial loans?
There's a difference between residential and commercial mortgage-backed securities. Residential mortgages are taken out by individual homeowners close to you and me. As of on the other hand, it's the income from select residential mortgage-backed securities that's in the main at risk of growing default and overdue payments.
By contrast, longer-term commercial mortgage-backed securities -- backed by mortgages on apartment buildings, retail or organization properties and hotels -- remain largely insulated from the subprime mortgage crisis. In certainty, the current failure to pay rate on commercial mortgage-backed securities issued surrounded by the finishing 10 years is at an historic low, according to a recent article in the Wall Street Journal. Meanwhile, the rental income that covers these mortgage payments is surging in market approaching Washington and New York, according to credit rating agency Fitch.
Default rates could rise this year as commercial loans are becoming increasingly aggressive. Still, mortgage REITs that focus on commercial indisputable estate, such as Newcastle (NYSE: NCT) and Vestin Realty Mortgage II (Nasdaq: VRTB), may hold the wherewithal to weather the current storm.
Are the mortgage loans guaranteed by government-sponsored agencies?
Not adjectives residential mortgages are bleak, any. The failure to pay rate on prime mortgages to homeowners next to solid credit have be rising, but it still stood at simply 0.42% contained by April, according to FBR Capital Markets.
Residential lenders resembling Capstead Mortgage (NYSE: CMO) enjoy held up in good health amid the subprime crisis, gratitude to a portfolio of "AAA" rate residential mortgage securities issued and guaranteed by government-sponsored entities approaching Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).
Likewise, Thornburg Mortgage (NYSE: TMA) provides prime-rated mortgages to thriving homeowners, and as we freshly noted, this bazaar have remained resilient despite the recent credit woes. As such, the shares could marshal once the mortgage flea market starts to recuperate.
Is the firm resourcefully capitalized?
Most firms borrow money to spring and invest in mortgage-backed securities, but some rely exclusively on external lenders. Meanwhile, others enjoy the luxury of anyone competent to stroke internal sources of funding.
Home lender American Home Mortgage (NYSE: AHM) be pushed to collapse because it be forced to lolly surrounded by its assets to run into demands for more collateral from external creditors. Likewise, Countrywide Financial be forced to borrow $11.5 billion so it could save making home loans.
But the difference is Countrywide runs regional bank. As such, it can demarcate its exposure to riskier lines of credit and stroke into low cost hill deposits, borrow from the Federal Reserve and the Federal Home Loan Bank, or draw on short-term financing arrangements next to other bank.
Other mortgage lenders that don't rely exclusively on outside creditors include IndyMac Bancorp (NYSE: IMB) and CapitalSource (NYSE: CSE), which expects to finalize the purchase of TierOne Bank (Nasdaq: TONE) in the coming weeks.
Opportunity Abounds
The dividend payouts of select mortgage lenders next to aspect portfolios and strong set off sheets should remain relatively safe and sound. Better even so, payouts on the preferred shares of these REITs and bank should be even more support, since preferred share dividends appropriate priority over adjectives share dividends.
The US$ is tanking, it will be pretty worthless soon. How can I invest in Euro currencies/ETFs/foreign invests
Do you infer JetBlue will cause me any profit this year?
How do trust funds work? do u take a confident amount dispersed to you every month, year, or what?
Need Help please!! I want to invest in some OPEN ENDED MUTUAL FUNDS in India?
Looking for someone that have the fitness to write an unorthodox stock screening program, anyone know of some?
Investors chicken out much much too precipitate for '...nil..
Answers:
The souk movement is what it is. There really is no grounds bringing up the rear any of it other the culmination of adjectives the investors perception. Just be equipped and make out the trend and shift next to it.
...IT'S LIKE A DEER WHEN HE'S CAUGHT IN A HEADLIGHT...AND GEORGE IS AT THE WHEEL.
The GDP number be an mature number. Investors are more concerned something like the adjectives cutback than the one from closing Spring. There isn't really a true trend right immediately, stifled volume but volatile days ahead of the holidays.
1. We're running out of grease, which our reduction depends on.
2. The Las Vegas Strip is losing out to China.
3. The period of war contained by Iraq is going to suck adjectives the money out of our reduction.
4. The mortgage and housing market are collapsing.
We're screwed!
Okay this is the best explanation I've see so far:
Mortgage Meltdown -- Opportunities Abound... If You Know Where to Look
St. Louis Fed President William Poole said it all right: "As is repeatedly the grip, the bazaar's punishment of unsound financial arrangements have be swift, cutting, and in need prejudice."
You've possible see the headline. Subprime mortgage woes hold brought once untouchable stall funds to their knees, pushed over 70 mortgage lenders into liquidation, and cut sour financing for dozens of corporate takeover. These events, surrounded by turn, own sent shockwaves through financial market around the sphere.
Easy Come, Easy Go
What's going on here? It adjectives boils down to one simple certainty: homeowners are falling at the back on their mortgage payments. In reality, postponed payments on home loans to citizens next to poor credit histories reach a 10-year illustrious this year, according to Bloomberg. And the number of U.S. mortgages facing foreclosure, including those near evasion notice, rose +58% within the first partly of this year over duplicate length concluding year, notes firm RealtyTrac not long reported. The firm is forecasting that digit could rise to a +65% year-over-year increase by the bring to a close of 2007.
Most of the foreclosures enjoy be among subprime borrowers, but even prime borrowers next to well brought-up credit are falling aft on their payments. Countrywide Financial (NYSE: CFC), the nation's largest mortgage lender, just this minute reported that over 5% of home equity loans to prime customers be past-due at the lapse of June, up from 2% at the failure of June 2006.
The problem is compounded by the certainty that home sale are slowing and housing prices are falling across the country. That make it harder for individuals who can't put together their payments to trade their house or embezzle out a home equity loan to wage down their debt.
Meanwhile, adjustable rate mortgages (ARMs), which details for most subprime mortgages, be originally set at low teaser rates a couple of years ago but are immediately resetting to greater rates. Some associates can't afford to nick out a different mortgage at lower rates because mortgage companies enjoy tightened standards and very soon require larger down payments.
From Mortgage to Bond
How can homeowners who don't pay stale their loans enjoy such a big impact on corporate America? The answer lies contained by the form of mortgage-backed securities.
Mortgage-backed securities turn home loans into a peerless loving of bond. They don't provide a in safe hands, fixed income resembling other bonds. Instead, they provide investors a claim on the principal and interest payments made on the loans in the pool.
These mortgage-backed securities aren't backed by only just one mortgage, but instead by monthly mortgage payments from hundreds of mortgage holders. Mortgage originator similar to Countrywide market individual mortgage loans to investment bank approaching Lehman Brothers (NYSE: LEH) and Citigroup (NYSE: C) or governmental-sponsored agencies similar to Fannie Mae (NYSE: FNM).
These folks afterwards throw hundreds of mortgages into a pool, divvy up the pool into bonds, and flog the bonds to investors close to allowance funds, evade funds, closed-end funds, and mortgage valid estate investment trusts (REITs), among others. The alchemy of transforming plain mortgages into a layered mortgage-backed indemnity is call "securitization."
From Defaults to Dividend Cuts
Any pocket money default or delay affect the mortgage lender's bottom row. That's because mortgage-backed securities are "backed" by mortgages contained by the sense that the income they provide go up and down beside the currency flow provided from the principal and monthly payments made by borrowers. Most securities are back by a private insurer, but near's no guarantee the insurer will congregate the obligation.
When family stop paying down their debt, holders of mortgage-backed securities suffer. For example, Countrywide Financial said default on mortgage loans contributed to profits falling by close to a third -- from $1.15 a share a year ago to $0.81 a share in the most recent quarter.
Also, to report for a highly developed number of society falling at the rear on their loans or not paying them bad at adjectives, firms close to Countrywide must set aside more money for potential loan losses. Since these loan loss provisions appear on the income statement as an operating expense, they can shrink profits and dividend payouts.
To craft things even more difficult, tons mortgage REITs borrow money to settle for their lend deeds. This leverage (or borrowing) add another vein of risk. Here's why...
Downgrades and Margin Calls
Unlike various bonds, mortgage-backed securities are not actively traded, so here's no updated course to price them. Typically, the funds enjoy valued them at cost. In insertion, credit rating agencies resembling Standard & Poor's would assign like credit rating to the unharmed financial guarantee, even though high-risk loans be pooled near lower-risk loans.
Now, rising delinquencies (late payments) on home loans own reduced the meaning of residential mortgage-backed securities as investors shun these riskier investments. Meanwhile, credit rating agencies are downgrading billions of dollars worth of these securities, and that's forcing the funds that hold them to smudge down their plus on their stability sheet.
One type of mortgage-backed payment that have be especially underneath the gun is the "collateralized debt obligation" (CDO). That's because CDOs, which are somewhat resembling mutual funds, hold be among the biggest buyers of riskier subprime mortgage-backed securities.
The problem is the credit rating downgrades can trigger fringe call, gist lenders similar to Merrill Lynch (NYSE: MER) or Citigroup (NYSE: C) want more money because the securities that serve as collateral to backbone a chain of credit hold lost so much plus. Funds beside little brass on mitt to draw together requests by creditors may enjoy to supply assets to make higher dosh. The distress sale can set bad a vicious cycle, forcing other funds to reprice their assets, thus triggering more side-line call.
When these securities are dumped on the souk and sold at reduced prices, they -- and the funds that hold them -- can become subsequent to worthless. Bear Stearns (NYSE: BSC), for instance, not long told investors in two of its quibble funds they would win little, if any, money hindmost if they attempted to redeem their stake because of "unprecedented declines" in the helpfulness of their subprime mortgage securities.
The Good, the Bad, and the Ugly
With this depressing state of affairs, why enjoy we settled to aspect the shares of firms that stem, bunch, and invest in mortgage-backed securities? Because for the discriminating investor, the turmoil in the mortgage sector may enjoy created an excellent entry opportunity surrounded by select firms that are better positioned than their competitors to weather the current mortgage meltdown.
In identify these opportunity, we asked some switch question:
Does the loan portfolio focus on residential or commercial loans?
There's a difference between residential and commercial mortgage-backed securities. Residential mortgages are taken out by individual homeowners close to you and me. As of on the other hand, it's the income from select residential mortgage-backed securities that's in the main at risk of growing default and overdue payments.
By contrast, longer-term commercial mortgage-backed securities -- backed by mortgages on apartment buildings, retail or organization properties and hotels -- remain largely insulated from the subprime mortgage crisis. In certainty, the current failure to pay rate on commercial mortgage-backed securities issued surrounded by the finishing 10 years is at an historic low, according to a recent article in the Wall Street Journal. Meanwhile, the rental income that covers these mortgage payments is surging in market approaching Washington and New York, according to credit rating agency Fitch.
Default rates could rise this year as commercial loans are becoming increasingly aggressive. Still, mortgage REITs that focus on commercial indisputable estate, such as Newcastle (NYSE: NCT) and Vestin Realty Mortgage II (Nasdaq: VRTB), may hold the wherewithal to weather the current storm.
Are the mortgage loans guaranteed by government-sponsored agencies?
Not adjectives residential mortgages are bleak, any. The failure to pay rate on prime mortgages to homeowners next to solid credit have be rising, but it still stood at simply 0.42% contained by April, according to FBR Capital Markets.
Residential lenders resembling Capstead Mortgage (NYSE: CMO) enjoy held up in good health amid the subprime crisis, gratitude to a portfolio of "AAA" rate residential mortgage securities issued and guaranteed by government-sponsored entities approaching Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).
Likewise, Thornburg Mortgage (NYSE: TMA) provides prime-rated mortgages to thriving homeowners, and as we freshly noted, this bazaar have remained resilient despite the recent credit woes. As such, the shares could marshal once the mortgage flea market starts to recuperate.
Is the firm resourcefully capitalized?
Most firms borrow money to spring and invest in mortgage-backed securities, but some rely exclusively on external lenders. Meanwhile, others enjoy the luxury of anyone competent to stroke internal sources of funding.
Home lender American Home Mortgage (NYSE: AHM) be pushed to collapse because it be forced to lolly surrounded by its assets to run into demands for more collateral from external creditors. Likewise, Countrywide Financial be forced to borrow $11.5 billion so it could save making home loans.
But the difference is Countrywide runs regional bank. As such, it can demarcate its exposure to riskier lines of credit and stroke into low cost hill deposits, borrow from the Federal Reserve and the Federal Home Loan Bank, or draw on short-term financing arrangements next to other bank.
Other mortgage lenders that don't rely exclusively on outside creditors include IndyMac Bancorp (NYSE: IMB) and CapitalSource (NYSE: CSE), which expects to finalize the purchase of TierOne Bank (Nasdaq: TONE) in the coming weeks.
Opportunity Abounds
The dividend payouts of select mortgage lenders next to aspect portfolios and strong set off sheets should remain relatively safe and sound. Better even so, payouts on the preferred shares of these REITs and bank should be even more support, since preferred share dividends appropriate priority over adjectives share dividends.