Bad Credit Mortgage Problems Persist, Concern Investors
U.S. stocks closed lower as the growing concerns about the subprime (or bad credit mortgage) market dragged down shares of several prominent investment groups.
Shares of Bear Stearns Cos., which last week bailed out a hedge fund it manages that is heavily invested in bad credit mortgages, fell more than 3 percent after analysts said the firm may need more cash to rescue a second fund.
Shares of Goldman Sachs Group Inc. fell 2.5 percent after Citigroup Inc. said Goldman’s bad credit home loan bonds issued last year are being downgraded at the fastest rate of any issuer.
“There are still potential concerns with fallout from the subprime mortgage market,” said Michael James, senior equity trader at Wedbush Morgan Securities.
“Broker stocks, with the exception of Morgan Stanley, have been pretty weak.”
The Dow Jones average was down 8.21 points, or 0.06 percent, at 13,352.05. The Standard & Poor’s 500 Index was down 4.82 points, or 0.32 percent, at 1,497.74. The Nasdaq Composite Index was down 11.88 points, or 0.46 percent.
In Washington, Senators will scrutinize home loan practices Tuesday when they convene a hearing on how to protect consumers from mortgage abuse.
Sen. Charles Schumer, D-N.Y., will chair a subcommittee hearing that likely will focus on a bill he introduced in May.
It would strengthen mortgage industry regulation and provide $300 million of government money - matched by mortgage lenders - to community groups that help distressed homeowners avoid foreclosure.
House lawmakers have been working on legislation to combat mortgage loan abuses but have not yet introduced a major reform bill, amid surging defaults among home loans given to people with weak, or subprime, credit.
Federal regulators say they are close to finalizing a new set of guidelines requiring stricter evaluations of a borrowers’ ability to repay their home loans, among other recommendations.
But consumer advocates say they are frustrated by the slow pace of action in Congress and among regulators to fix the mortgage quagmire.
SOURCE: Reuters / Houston Chronicle