It is not a good time to be in the mortgage lending business. Bear Stearns are finding that out the hard way. The investment bank quarterly earnings tumbled by a third as trouble in the mortgage market hurt bond trading revenue. The bank was also forced wrote down assets at a stock trading venture.
Bear Sterns is one of the US's largest mortgage bond underwriters. Given the present conditions in the housing market, mortgage exposure is a bad thing right now.
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Anonymous said...
Bear Stearns Cos., the second-biggest US underwriter of mortgage bonds, is liquidating holdings from one of its hedge funds after making money-losing bets on subprime mortgage bonds.
http://www.bloomberg.com/apps/news?pid=20601109&sid=aljUsgLlj8GI&refer=home
Bear Stearns sought bids today from prospective buyers for about $3.8 BILLION of mortgage securities from the fund. The 10-month-old Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund, which is down about 20 percent this year, had about $600 MILLION of investors' money and borrowed to increase its buying power.
As delinquencies rise on loans made to homebuyers with poor credit or heavy debt loads, bondholders stand to LOSE AS MUCH AS $75 BILLION on securities backed by the mortgages, according to Pacific Investment Management Co., manager of the world's largest bond fund.
Bear Stearns's fund is among the first to start liquidating because of the subprime crisis, which already has forced lenders such as New Century Financial Corp. and ResMae Mortgage Corp. into bankruptcy.