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The Mortgage-backed Bond Bonanza

Posted by: Chris Palmeri on January 24, 2006

Standard & Poors, which like BusinessWeek shares the same corporate parent, The McGraw-Hill Cos., just reported its 2005 stats on the mortgage-backed securities market. These are the pools of home loans that get sold on Wall Street to institutional investors and mutual funds. Despite rising interest rates, 2005 was another record-setting year with $2.787 trillion worth of mortgages, sliced, diced and sold on Wall Street. That record issuance was due entirely to originations of riskier loans. The number of new subprime loans reached $465 billion. Issuance of Alt-A loans—those where less income documentation is required—more than doubled to $332 billion. S&P still reports that upgrades in its ratings of these loans exceeded downgrades by nearly ten-to-one. That’s good news. But, ominously, 2005 was also a big year for downgrades. Some 150 securities were downgraded last year, up from 69 in 2004. Last year’s downgrades were mostly due to performance of those riskiest loans. Lenders’ increased willingness to extend a mortgage to just about anyone is beginning to show its dark side.



BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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