San Diego Housing Market News and Analysis
Trouble in EZ-ville
Submitted by Rich Toscano on December 12, 2006 - 9:28am
Just how much has demand declined? Maybe a lot. The ABX indices measure the price of credit swaps for various grades of recently-issued mortgage-backed securities. Last week, an orderly decline in the subprime ABX index turned disorderly, as indicated by the red line on this chart from the people who track the index:
I don't know enough about credit derivatives to fully understand the significance of all this, but it seems likely that the level of defaults has risen enough to (finally) scare some yield pigs from the trough. If the market for subprime mortgage-backed securities is drying up, mortgage lending will be tighter going forward regardless of any regulations or lack thereof.
Whatever their exact nature, it's clear that cracks are forming under the subprime lending monolith.
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