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Subprime worries grow with Bear Stearns news

Fannie Mae projects 10.2% decline in '07 home sales

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Two Bear Stearns hedge funds that invested in securities backed by subprime mortgages have very little or no value, the company told investors in a letter Tuesday. The news, coupled with last week's decisions by ratings agencies to downgrade their ratings on billions of securities backed by subprime loans, could force other securities firms to write down the value of such investments. That would force originators of subprime loans to continue raising their rates, as investors demand higher returns for the risk involved in financing such loans. Benchmark derivatives indexes that track subprime loans hit new lows Wednesday -- an indication of heightened perceptions of investor risk. An index of credit swaps tied to subprime loans made in the second half of 2005, the ABX.07.1.BBB-, hit 43 basis points Wednesday, or less than half its issue price of 100. The ABX.06.2BBB-, which is tied to loans made in the first half of 2006, fell to 47.75. Even before the most recent developments, cre...