Housing Slump Hits Lenders of High-Risk Loans

The mortgage business could be heading for trouble as the housing market slumps, especially lenders who dealt in high-risk loans. One big bank, HSBC, announced that its losses from bad loans would probably grow this quarter.

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Some other news, there's new concern about the health of the mortgage business, especially the so-called sub-prime lenders. One of the world's biggest banks, HSBC, said yesterday that its losses from bad loans would probably grow this quarter. Other lenders are worried as well.

Here is NPR's Jim Zarroli.

JIM ZARROLI: HSBC's finance director told analysts that mortgage data was beginning to come in for the fourth quarter, and he said there is a weakening. The housing market has slowed dramatically in recent months, and the number of foreclosures has begun to increase. Karen Shaw Petrou is managing director of Federal Financial Analytics.

Ms. KAREN SHAW PETROU: The bulk of this is all in the sub-prime arena and sub-prime mortgages. We've seen a lot of products in the mortgage market in the last couple of years, and they've grown enormously.

ZARROLI: Petrou says that in recent years, a lot of lenders issued loans to barrowers with poor credit histories. They included no-interest mortgages or loans that require little or no documentation. And many of these loans have been the first to go bad now that the market has slowed. HSBC, which acquired Household International, is a major sub-prime lender in the United States. Some other lenders have also reported trouble, and many companies like H&R Block and National City Corporation are trying to sell off their sub-prime units.

Petrou says conventional lenders appear to be less vulnerable to the downturn. She says they made fewer bad loans, and also tended to unload their mortgages into the private securities market. She also says the downturn is not yet as worrisome as some previous real estates slumps, like the early 1990s.

Jim Zarroli, NPR News, New York.

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