[American Home Mortgage] The lender slashed Q1 profit targets to 40-60 cents a share, below views of $1.01. It struggled to sell mortgages and will stop making some "alt-A" loans due to losses. M&T Bank, which also makes many "liar loans," cut views last week, citing trouble selling mortgages. These warnings raise concerns that lending woes are spreading beyond subprime. American Home fell 15%.
That's two more companies that are having problems thanks to the mortgage market. Interest rate roundup had a nice take on the M&T Bank situation in a post titled, "So much for the lack of Alt-A spillover ..."
5 comments:
The title of your post is wrong.
The American Home Mortgage has nothing to do with subprime lending. This is Alt-A and prime mortgage company. The problems are not contained to subprime.
While you are technically correct that Alt-A loans usually require a higher credit rating, the reality is a large enough portion of Alt-A loans are stated income loans where applicants tell the broker the applicants income and the broker does not background check. This places these loans clearly in the subprime category.
Hi Bonddad, I have a really basic question about subprime threats.
Aren't the lenders protected from the impact of borrower loan repayment default by the federally required Private Mortgage Insurance?
Here's my guess answer to your question about Private Mortgage Insurance (PMI)
Many subprime borrowerers avoided PMI by getting their 100% financing through 80%/20% loans. PMI was only required if your first was for greater than 80% of the purchase price. So what they would do then is get a first for 80% and a second for the remaining 20%, thus avoiding PMI.
It's an old technique that was used legitimately for many years.
A --
I can't speak to that.
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