A total of $5 trillion of mortgage loans, or almost half of the nation’s home loans, belong to “risky asset categories” such as subprime and Alt-A, Gross of Pacific Investment Management Co. said Bill Gross, who manages the world’s biggest bond fund. A commentary is posted on the firm’s Web site today. HSBC and HSBC Finance was right in the middle of the mess, all under the control of HSBC USA. The total refers to mortgages, not second mortgages and second trust deeds. Unsecured lines of credit and credit card business is also vulnerable.
About 25 million U.S. homes are at risk of negative equity, which could lead to more foreclosures and a further drop in prices. A home has negative equity when it’s worth less than the mortgage with which it was bought. The situation may be tolerable for some homeowners in the summer, while weather is warm. what will these homeowners do when heating oil costs $3.50 per gallon in the winter? There seems to be a capital shortfall at the lender level too.
It is possible that credit-market losses are less than halfway over. Since the start of 2007, firms including Citigroup Inc., Merrill Lynch & Co., and UBS AG have reported $467.9 billion in losses and writedowns after the collapse of the U.S. submprime mortgage market roiled credit markets, according to data compiled by Bloomberg News. Firms worldwide have raised $344.2 billion of capital since the third quarter of 2007. What is the exact roll of HSBC Finance, HSBC USA, and Decision One in the scandal? Time will tell.
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