NEWS / Foreign Exchange

Subprime Market Update

• Foreclosures rose 28,7% in the first quarter of 2007 to a total of 0.4 millions filings
• Issuance of Alt-A home loans climbed in the first quarter of 2007 because banks are offloading risk
• Housing starts and building permits in US increased for a second month in March

Housing foreclosure rose 47% in March, compared to the figures of a year earlier, according to Realtytrac Inc., a California-based research firm. Foreclosure figures reached more than 149,000 filling in March, the highest number since data is collected beginning in January 2005. The number of owners making late payments on mortgages is at a four-year high and the failure or sale of 50 subprime mortgage companies has tightened the supply of money for lending. Freddie Mac is committed to buy as much as $20 billion in subprime mortgages, while Washington Mutual Inc. offered to refinance $2 billions in loans in order to help borrowers with poor credit histories avoid losing their homes, according with Freddie Mac CEO. The company has jet to gain the approval from its regulator for both the amount of capital needed and the mechanism proposed.

In the secondary mortgage market, issuance of bonds of Alt-A home loans climbed 2.7% from a year earlier to 98.7 billion of dollars in the first quarter of 2007, according to industry newsletter Inside MBS & ABS. In the same period, sales of bonds backed by subprime home loans fell 22% to 88.0 billion of dollars. Issuance of Alt-A bonds, which are usually made to people with good credit histories who opt for atypical underwriting or loans terms, may have risen because financial firms are offloading risk as loan delinquency rate is rising. All in all, total issuance of residential mortgage bonds by companies without link to Fannie Mae or Freddie Mac fell 1.4% to 271.8 billions in the firs quarter, according to Inside MBS & ABS. (Alt-A mortgages more often include loans with less documentation of borrower income or assets, secondary financing used as a down payment, and money used to purchase second homes or rental units. Many of these loans are interest only or adjustable-rate mortgages with minimum payments).

Housing starts raised in March, for second month in a row, at an annual rate of 1.5 millions, an increase of 0.8% from February, the Commerce Department announced this week. Building permits also raised 0.8% in March. Unusually warm temperatures during last month could encourage builders to start work on more homes, along with signs that demand is starting to show as prices moderate. Construction of single-family homes rose 2.0% to a 1.2 million rate; work on multifamily structures, in the other hand, fell 3.8% to an annual rate of 0.3 millions of units. Building permits for single family, a leader indicator of construction activity, increased 1.4% in March. Tighter lending standards prompted by increasing delinquency is likely to constrain home purchases by some borrowers, specially the ones with poor or limited credit histories.