Sydney Mourning Herald

Most analysts agree that the subprime crisis has a way to run. The number of mortgages in default at the end of June was 631,000, up from 313,000 a year ago. But the really scary number is that about 1.5 million subprime loans are still scheduled to "reset" this year. That is when the interest rate jumps 3 to 4 per cent and home owners find their repayments increase by 30 to 40 per cent.

Lawrence Summers, a Treasury secretary in the Clinton administration, has predicted there will be more than 2 million foreclosures over the next two years and that as many as 15 million home owners will owe more than their houses are worth.

There are other storm clouds on the horizon for the US economy as well.

The credit drought is starting to hit small business, freezing expansion. Consumer spending is slowing. Despite $US152 billion being pumped into the economy by way of a stimulus package last month, consumers have cut their spending, especially on expensive items like cars and furniture.

Six Banks at Risk to Follow the Path of IndyMac

Carrie Bay | 07.18.08

The recent reopening of IndyMac Bancorp Inc., as the now federally controlled IncyMac Federal Bank , after bad banking practices forced them to close their doors, has left many consumers afraid that in these tough economic times more banks will follow the path of IndyMac. According to a recent story posted on Thedeal.com, Richard X. Bove, banking analyst at Ladenburg Thalmann & Co. Inc., recently released a report entitled "Who is Next" stating that six U.S. institutions are at risk for failure. However, Bove added that collectively, banks and thrifts in the United States are nowhere near the precarious climate that existed in the late 1980s and early 1990s.

According to the report, Bove says that despite adverse murmurs by officials and overall declining confidence in the system, there are not as many institutions at risk for failure as one might think.

Based on Bove’s calculations, the following six banking institutions are in what he terms the danger zone:

- Downey Financial Corp.

- Corus Bankshares, Inc.

- Doral Financial Corp.

- FirstFed Financial Corp.

- Oriental Financial Group Inc.

- BankUnited Financial Corp.

The Wall Street Journal

July 17, 2008, 12:57 pm

Subprime Legal: Feds and States Probe Wachovia, IndyMac

Posted by Amir Efrati

The race is heating up among regulators and prosecutors to show the public that they’re sorting out the auction rate securities mess.

Here’s the breaking news, courtesy of WSJ’s Liz Rappaport: A team of 10 state securities regulators drove to the St. Louis headquarters of Wachovia Securities yesterday to demand documents and conduct interviews about the firm’s sales and marketing of ARS. The onsite inspection occurred after Wachovia hadn’t fully complied with regulator requests, Missouri regulator officials said.

The state investigators came from Missouri, Illinois, New Jersey, Pennsylvania and other states, all of which are part of a task force led by Massachusetts. (Missouri also said it is investigating Commerce Bank N.A.)

For newbies to the auction rate world, a brief refresher: The $330 billion ARS market froze up earlier this year amid the credit crunch (caused in part by the subprime debacle), and investors ": individuals, charities and companies, among others ": were left unable to easily sell their securities and access their money. Some of these securities are tied to subprime mortgages and have lost much of their paper value.

As you might recall, last month Massachusetts got the party started by suing units of investment bank UBS AG for fraud and dishonest conduct in sales of ARS. The suit alleges that UBS representatives told investors that the securities were safe, liquid cash alternatives’ when UBS knew they were not. The bank is defending itself against the suit and recently announced a plan to buy back as much as $3.5 billion in ARS from its customers.

Then last week, the WSJ broke news that the ARS mess has gone criminal, with an investigation into whether two former Credit Suisse brokers who sold many ARS that were backed by subprime-related instruments had deceived investors.

Not to be forgotten, the Securities and Exchange Commission requested information from Wachovia earlier this year and it has been probing UBS, as has New York Attorney General Andrew Cuomo. The FT reported Monday that the SEC is in discussions with Wall Street banks to help unfreeze the market.

In other breaking subprime news, WSJ, following an AP scoop, reports today that failed lender IndyMac Bank, which was seized by the government last week, is under investigation by the Federal Bureau of Investigation for possible mortgage fraud. The FBI said Pasadena, Calif.-based IndyMac is among 21 banks under investigation for such fraud.