Monday, April 16, 2007

Subprime (Again....)

Felix Salmon over at his new blog points an article at Bloomberg, which I hadn't noticed. Fremont General, a large-sized originator of "subprime" loans, has recently sold several chunks off at a loss. The latest was a $2.9 billion chunk of loans, while we don't know the explicit quality of these loans, we can make a few assumptions here. First, Fremont sold these at a $100 million discount. Do the math and that is an expected loss of about 3.45%. If we make the assumption that this particular chunk of loans is representative of the market, then the so-called meltdown in subprime is not something to feared, it'll hurt, but it is not the end of the world.

Also, I would point out, this how healthy financial markets work. They discount and work through the bad stuff. Just as we did after the S&L crisis. In the apartment market we are already seeing that, with reversions of condo-conversions happening, and some minor REO stuff on failed conversions. There is significant amounts of "vulture" capital waiting to make a play.

Watch the subprime market, but if Fremont General is any indication, it won't be as bad as some are prognosticating.

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