November 5, 2006 at 8:23 AM #7837powaysellerParticipant
Reuters writes that US credit quality is retreating toward junk bond status per S&P ratings.
The percentage of junk bond ratings (BB+ or lower) among US corporations climbed from 28% 14 years ago to 49% the end of September. 61% of industrial companies are junk bond. Only 6 US industrial companies are rated AAA.
“Given the present ratings mix, the default rate could exceed 15 percent, the highest since the Great Depression, if the economy goes into a recession, according to Martin Fridson, publisher of independent research service Leverage World….
The investment-grade universe, meanwhile, is now dominated by financial institutions, “as mergers and acquisitions have created enormous financial entities with huge funding appetites,” S&P said.”November 5, 2006 at 10:53 AM #39252AnonymousGuest
I'm guessing that there's less here than meets the eye: I'm guessing that top-flight companies continue to hold top-flight bond ratings. The change has been, I'm guessing, just as in housing, a lot of so-so corporations floating issues that, when credit was not free and easy, would not have seen the light of day.
Doug Noland's weekly column on credit conditions at Prudent Bear does an outstanding job laying out the weekly developments. This week, he noted that commercial loans have grown by 15% over the last 12 months. That's huge, and has been that way for a long time.November 5, 2006 at 6:43 PM #39265CAwiremanParticipant
This was also at that link you posted. Basically, 89% of
Refi-loans via Freddie Mac resulted in at least 5% cash out
Real Estate Bubble Watch:
November 1 – Dow Jones (Danielle Reed): “Despite higher mortgage rates, homeowners are still choosing to take cash out of their homes when they refinance, housing finance agency Freddie Mac said… In the third quarter of 2006, 89% of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least 5% higher than the original loan balances, Freddie Mac said… That’s up from 88% in the second quarter, and is the highest share since the second quarter of 1990. Cash-out refinancings have increased even as mortgage rates have risen, bucking historical trends, Freddie Mac said…‘Mortgage borrowers continue to refinance their mortgages at a higher frequency than historically would have occurred given the rise in mortgage rates over this year,’ said Frank Nothaft, Freddie Mac vice president and chief economist… One difference in today’s refinance environment, he said, is that there are now large numbers of mortgage borrowers holding hybrid…(ARMs) whose fixed-rate terms are almost over, meaning those ARMs are due to shift to floating rates. This ‘provides borrowers an incentive to refinance into a lower-cost ARM or fixed-rate mortgage,’ Nothaft said… The cash-out refinance report also showed that prices of properties refinanced during the third quarter of 2006 had a median appreciation of 33% from the time the original loan was made…”
If borrowers are converting to fixed rate loans, hat’s off to ’em.
But the fact that properties were apparently appraised at 33% greater values that when the loan was originated is interesting. If the loan originated recently, then maybe the value doesn’t equal reality. What madness this is.
JG (and PS) great posts, as usual.
- You must be logged in to reply to this topic.