Mortgage and Business News » US Banks

U.S. banks kick-start alternative way to provide mortgage loans

Nikki — Mon, 28 Jul 2008 22:22:44 +0000

Representatives of the four largest U.S. banks and Henry Paulson, Treasury Secretary, agreed on Monday to kick-start a market for covered bonds, in the United States this is an alternative way to provide mortgage loans.

To explain how they work, basically, a bank borrows money to lend to homeowners and holds the mortgages on its books. It uses the proceeds of the mortgages to repay investors. Although covered bonds are all over Europe they actually originated from Germany.

Paulson said at the press conference where he was pushing the idea of the bonds “Covered bonds are a promising financing vehicle and we believe this market can grow in the United States” who also added “The key to the U.S. economy making a major improvement will be turning the corner on housing finance, the housing correction. We’re not going to be able to do that unless we have availability of mortgage financing and this is an attractive new source.”

The idea behind the bonds is to help the housing market, and create liquidity, which has ground to a halt in the traditional US way. Under this new way using Covered bonds the mortgage originators sell mortgages to financial institutions that package them into securities and then re-sell them. Although people have not wanted to invest in anything mortgage related over the last year.

Covered bonds are considered more secure than mortgage-backed securities because the purchasers of the bonds have a direct claim on the issuer’s balance sheet.

It is said that the investors will find the covered bonds more attractive and provide a better tool of gaining liquidity into the system.

Source: marketwatch

US banks more at risk than European firms

Peter — Wed, 16 Jul 2008 13:11:23 +0000

We have seen over recent weeks stocks falling significantly, this is a direct result of US banks, such as Fannie Mae and Freddie Mac, and the biggest loser so far has to be IndyMac.

It seems that this trend of banks at risk is more of a problem for US banks rather than European firms. Experts have said that default risk has risen significantly for U.S. banks and brokers however; this seems to be a different story in Europe.

That is not to say that other banks outside the U.S. are not having their own problems, just look at all the trouble surrounding UK bank Northern Rock, they had to get help from their government.

If you head over to seekingalpha.com, they have a table which shows the bank and broker default list, and you can clearly see that it is the U.S. banks that are right up the top of the list.

The table shows percent change in equities and default risk over the last week for 15 global financial firms.

Fannie Mae, Freddie Mac help Tokyo shares

Peter — Fri, 11 Jul 2008 07:47:23 +0000

Asian shares especially in Tokyo have rallied following the news that the U.S. Government have stepped in to bail out banks, Fannie Mae, Freddie Mac. It is also suggested that ten-year yields may rise because of the efforts to helps those companies.

MSCI Asia Pacific Index of regional shares had rose to 0.3 percent, as a result erased those earlier losses which curbed the demand for debt. Freddie Mac shares fell by 22 percent to just $8, Fannie Mae dropped 14 percent to just $13.20 per share.

A recent newspaper report has said that banks shares are dropping while their borrowing cost continues to increase. Investors speculate that losses could be in the region of $11 billion over the past few months, this will just keep increasing.

Fund Manager at Daiwa SB Investments, Tokyo, Kei Katayama “I’m betting on the weak economy.” She also added “There’s going to be weaker consumption and much weaker growth.”

Read the full report from Bloomberg