Street Signs, CNBC, 3/5/07
Date March 05, 2007
Time 02:00 PM - 03:00 PM
Program Street Signs
ERIN BURNETT, anchor:
All right. Thank you very much, Steve, and actually just
looking at that Lehman Brothers call that Steve had, we're
gonna be talking much more about that in just a bit because
it hits on this entire issue. Is this problem just
subprime, or is it spreading? So let's talk a bit about
that now, because subprime has been dominating the
headlines.
And we've been talking about it for months, so it's time to
take a reality check and tell you why it is that the
subprime headlines matter so much to investors.
Diana Olick has a closer look at the answer to that
question from Washington.
Hi, Diana.
DIANA OLICK reporting:
Hi, Erin. And it's because trouble in the subprime sector is
seeping and it very well could affect your ability to buy a home.
Federal regulators are cracking down on all lending as the
residual effects of the real estate boom and the loose
lending practices that came along with it start to take
their toll.
Mr. GUY CECALA (Inside Mortgage Finance President): Well,
there's still a tide of underwriting that's going on
across the board now, and that affects prime as well as
subprime lenders.
To a large extent, the pendulum is swinging back.
OLICK: With 31 mortgage lenders going bust since just late
last year, according to this one source, and news Friday of
one lender under federal investigation for its accounting
and trading practices, federal regulators Friday issued a
proposed policy statement that would urge lenders to
tighten standards and follow existing rules more closely.
But that's already happening.
Mr. CECALA: People want to see W2 statements; they want to
see tax returns. A lot of that puts more pressure,
particularly on the type of borrower who doesn't have
traditional income stream.
OLICK: With foreclosures up 25 percent in January from a
year ago and 35 percent in December, many subprime
borrowers are trying to refinance out of the more risky
products that now make up one-fifth of the mortgage market
compared to just 5 percent five years ago.
But with home price appreciation all but non-existent now
in many parts of the country and tighter standards from
lenders, refinancing is not always an option. That will
undoubtedly lead to even more foreclosures.
Mr. BOB MOULTON (Americana Mortgage Group President): If
that's the case, when they go to refinance, and if they
still fall within that subprime category, I think there's
gonna be some issues. There's gonna be more delinquencies
leading into more foreclosures, and I think the subprime
borrower--if they still are a subprime borrower and have
not improved their credit--is gonna have issues.
OLICK: So with more and more foreclosures, that means even
more houses back on the market to lower prices for the rest
of the neighborhood. It also means far greater scrutiny,
even of the non-subprime borrowers, and higher prices for
the loans.
Credit Suisse today sent out an internal document obtained
by CNBC, effective today: "We modified our base prices and
pricing adjustments to more accurately reflect the altering
in subprime mortgage market conditions."
That's where it's going, Erin.
BURNETT: All right, Diana. Thank you very much.