BizJournals Portfolio
Home >   Business Views, Opinions and Blogs >   Business Blogs >   Market Movers >  

Quantifying Subprime Losses

Market Movers

by Yves Smith and Felix Salmon
Main
SEC Official: Insider Trading Makes for Efficient Markets   ABN's Groenink Watches an Era's End Approach

Recent Blog Posts

Links

Apr 16 2007 12:00am EDT

Quantifying Subprime Losses

Next time you see anything about subprime "carnage" or references to "high-risk loans", remember this. Fremont General has agreed to sell $2.9 billion of subprime home loans at a net loss of $100 million. The agreement is the second such deal that Freemont has made: in the first, it sold $4 billion of subprime loans for a loss of $140 million.

In both cases, the loss is roughly 3.5%. Now I know that bond markets are risk-averse, but in anybody's book a loss of 3.5% is hardly the end of the world. In fact, Fremont shares are up 25% in trading today, as investors realize that the company does not, after all, risk being wiped out by the "subprime meltdown".

Note: These are real loans, going for real money – billions of dollars. As such, they're a much better indication of the health of the subprime market than the ABX "index", which in fact does not reflect the price of underlying securities at all, but is rather a traded contract and a volatility super-magnet.

blog comments powered by Disqus
Real Business, Real Results
Out of the 'Family'

Did anyone at Microsoft ever watch the (gasp!) offensively funny show Family Guy?

Cruz Missile Lands

Ex-Morgan Stanley exec Zoe Cruz is now heading her own hedge fund. Are Wall Street's leaders done?

Scandal Chic

Martha, Bernie and Skilling know that what you wear for court can go a long way in public perception.

spotlight on

Health Care

Bad to the Bone No More

Companies such as General Mills say they're stepping up efforts to change employees' bad behavior and promote healthier lifestyles. Read More