- Wealth PMS (50L+)
I’ve been reading Calculated Risk recently and man is it something. To get a better hold of the U.S. housing fundas, or to simply decipher the plethora of news you seem to hear, I cannot find a better place.
Today’s picks from there: Goldman Sachs predicts a $2 trillion cut in future lending. What this means is – there may be a hit to banks’ capital, which can take their capital down $200 billion (assuming just half of the total hits their balance sheets). If banks leverage their capital 10 to 1, they are going to stop lending to the extent of $2 trillion.
This is assuming that they can’t find the $200 billion to recapitalise, (And $200 billion is not a small amount) and that there is no macho rescue event by the US Fed. And this is perhaps conservative as banks leverage higher than 10 to 1.
First, the bulk of the first interest rate resets for adjustable-rate subprime mortgages are yet to come. On average, from now until the end of 2008, nearly 450,000 subprime mortgages per quarter are scheduled to undergo their first reset, eventually causing a typical monthly payment to rise about $350, or 25 percent. Second, the weakness in house prices and the resulting limit on the build-up of home equity will hinder the ability of subprime borrowers to refinance out of their mortgages into less expensive loans; as a result, more borrowers will be left with a mortgage balance that exceeds the value of the house.
Very interesting conclusions further there. Good read.