| S&P Stops Rating Home Equity Loan Bonds
US credit rating agency Standard & Poor's said on Thursday it will not rate any more new bonds pooling home equity loans to prime and subprime borrowers because losses on some existing bond deals have been so great the agency cannot figure out how to rate the new deals. Home equity loans not only aided consumer spending in recent years, they helped consumers buy larger homes with less money down through so-called piggy-back mortgages. In some cases, home buyers purchased a home borrowing 80% of the purchase price with a first-lien mortgage and then borrowed 10% or 20% with one or two other loans—second-lien mortgages. "After reviewing and analyzing the performance data available for US closed-end second-lien mortgage loans and the related residential mortgage-backed securities (RMBS), Standard & Poor's Ratings Services believes that this market segment does not allow for meaningful analysis of new issuance and securitization," the credit rating agency said in a statement.
As house values fall, some banks are freezing home equity credit lines
With home values falling in many parts of the country, several of the nation's biggest lenders have responded by suspending their customers' access to home equity lines of credit. While it does not appear any local banks have frozen home equity lines of credit in Western Pennsylvania, at least one -- National City Bank -- has indicated that it might exercise that option. "In situations where there has been a material change in financial circumstances or a significant decline in the mortgaged property's value, we may suspend further access to a homeowner's line of credit," said Bill Eiler, a company spokesman. "We are facing an unprecedented time in the housing industry, and we believe it's prudent to assess and address risks that arise due to significant changes that have occurred since the original line of credit was extended." Mr.
Home values slide, more foreclosures expected
A new study finds that half of homes purchased in 2006 have decreased in value. The study reports that home values in the first quarter of this year were down more than seven percent from 2005.
The web site zillow.com, which tracks home prices, states more than half of homeowners who purchased during the market peak in 2006 owe more on their mortgages than the home is worth. The rates of negative equity run much higher in California, Florida, Phoenix and Las Vegas.
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Private equity houses snap up cheap debt
Concerns are mounting over private equity investors or the companies they own buying back debt at a discount from banks and undermining the principles of syndicated lending. Banks are alarmed at the prospect of companies picking off members of a lending syndicate to purchase their own debt when syndicates are meant to stick together. The Bank of England is also thought to be concerned about banks selling off debt at big discounts to clear up their balance sheets. As well as throwing the loans market into confusion, the practice triggers writedowns that could prolong the lack of confidence in the financial system. The credit crunch has left banks saddled with many billions of dollars of debt. To free up funds for new lending and to demonstrate strong balance sheets, lenders have started selling debt back to borrowers.
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