The fallout from the subrpime lending crash is far from over, and this morning’s stock market holds the proof. Subprime writedowns are all the rage right now, with the latest coming from Merill Lynch, which reported a loss that more than doubled estimates. Bloomberg reports on the stock market right now, and where it’s at thanks to the subprime lending crash:

“Right now, this market is the Devil’s arcade,” said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $6 billion in San Antonio. “We could still go lower from here because we don’t have our arms around the subprime writedowns.”

Merrill’s writedowns add to more than $100 billion of subprime-related losses reported since May by the world’s largest banks and securities firms. Citigroup Inc. posted the biggest loss in its 196-year history earlier this week as the largest U.S. bank’s subprime mortgage investments tumbled in value by $18 billion.

Financial sector stocks are hard-hit as the year gets underway, with those in the S&P 500 losing 6.8%. In 2007, financial sector stocks lost 21%. No one is expecting a quick recovery, and while there are investing opportunities to be found in the current stock market, it is important to take a good look at the fundamentals. Some companies may not make it out of this mess.

Tags: mortgage lenders, subprime writedowns, home mortgage loan, mortgage loan blog,
stock market, investment opportunities

Mortgage lenders are changing the way they do business right now, avoiding investments in packaged loans. Indeed, thanks to risky bank debt, many mortgage lenders are set to report rather dramatic fourth quarter 2007 losses in the very near future. This has mortgage lenders reconsidering how they do some things, reports Businessweek:

With defaults piling up, lenders have turned away from mortgages packaged and sold to investors and back to loans held on their books and those sold to Fannie Mae and Freddie Mac, the government-sponsored mortgage companies.

Doug Duncan, the trade group’s chief economist, said in a statement that banks are strong enough to keep making mortgage loans. A recovery “may take longer this time than it has in past financial crises, but a turn for the better still appears to be a good bet later in the year,” he said.

It’s good news that the losses won’t completely wipe out the Wall Street banks, since at some point someone still needs to be making home loans. However, the recovery may mean that lending standards remain in their tightened state for longer. And it could also mean that fewer borrowers will qualify for home mortgage loans in the future.

But for investors, it could present opportunities. The big Wall Street banks will likely recover, so it might be a good time to get stock at bargain prices. Just be careful. No one really knows what the stock market will do, and you want to choose a bank stock that will recover, not one that tanks even after the current crisis comes to an end.

Tags: home loans, mortgage lenders, home mortgage loan, mortgage loan blog,
Wall Street banks, opportunities investors, investments

Right now, political leaders are falling all over themselves to try and fix the economy. And one of the latest efforts in staving off a recession is the possibility of a $500 tax rebate to individuals. The Wall Street Journal reports on the proposed $500 tax rebate:

Faced with recession fears, the White House is considering tax rebates for individuals to encourage spending and tax breaks for businesses to encourage investment, according to people familiar with the matter.

The interesting point, of course, is that the idea is to stimulate the economy by encouraging spending. No encouragement to pay down debt, or put an extra payment toward a home mortgage. Indeed, a $500 tax rebate would do very little in terms of staving off the subprime lending crisis. The whole point is to get American consumers to spend more money.

While the $500 tax rebate would be given to individuals, businesses would also get tax breaks. Businesses would be encouraged to invest, but not individuals. Individuals would be encouraged to spend. Because saving it or paying down debt would not accomplish the goal of putting more cash into the economy.

Of course, the $500 tax rebate hasn’t even been presented to Congress as yet. It may never happen. But discussion of it does provide an interesting insight into how the economy is perceived to work by those “in charge.” The true interest isn’t ending the subprime lending crisis for the sake of the American people. It’s about “saving” the economy rather than redefining what makes it strong.

Tags: $500 tax rebate, mortgage blog, home mortgage loan, subprime mortgage,
subprime lending crisis