Oh, happy day. Mortgages issued in the first half of 2007 are going bad at a rate much faster than those issued in 2006. According to The Wall Street Journal, data from the "Federal Deposit Insurance Corp. shows that 0.91% of prime mortgages from 2007 were seriously delinquent after 12 months, meaning they were in foreclosure or at least 90 days past due. The equivalent figure for 2006 prime mortgages was just 0.33% after 12 months."
The news means that earnings could get worse at large banks that have mortgage loans at the center of their businesses. Wachovia (NYSE: WB) and Washington Mutual (NYSE: WM) come to mind. That should be especially interesting for investors in the two companies. Over the last month, both stocks have recovered. Washington Mutual is up about 2% and Wachovia has risen a remarkable 30%.
Wall Street had hoped that bank stocks, especially those with businesses focused on the mortgage markets, would improve as subprime loans worked their way through the system. That may have worked if prime mortgages weren't going bad at an increasing rate these days and loans from 2007 didn't appear to present more risk than those from earlier periods.
All of that is to say that a stock like Wachovia, which fell as low as $7.80 and then recovered to $18.41, is not out of the woods. As a matter of fact, it may be heading back in.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 1)
8-07-2008 @ 11:10AM
Dan Barnett said...
Jim Cramer has been saying it for a while, if you count the beginnings of the sub-prime mortgage problems as say, August '07 & you figure that there is a 2 yr "intro rate", then it's going to be the fall of '09 before you can be sure the mortgage mess won't get any deeper.
I don't understand why many writers keep trying to see the end of the problem now, a full year before the problems will work themselves out.
& that doesn't count the economy going south (today's jobless figures) which will drive many ohterwise safe loans into the insecure list.
8-07-2008 @ 2:23PM
marc said...
Enough already- how much can we talk about this- just another blog saying how it is the end of the world- there has got to be a more productive way to approach this-