American home LoansUS mortgage lending
In the latest signs of the US residential mortgage squeeze, which is expanding from subprime mortgage to higher levels of exposure, American Home Mortgage has gone bankrupt. Crédit Suisse cautioned that 1.5 million individuals are likely to fall behind on home loans of up to $220 billion (£108 billion) as a massive mortgage installment is raised over the next 18 month.
The AHM, which spent $60 billion in loans last year, asked for creditor protections in Section 11 and began firing almost all of its 7,400 staff after bank loans were suddenly suspended. In contrast to the other 50 or so subprime providers that have gone into bankruptcy or closure since the end of 2006, AHM specialized in "Alt-A" loans for medium-sized borrower, which are regarded as a good exposure.
Moody's said that Alt-A loans are in fact hardly better than subprime loans, which already face a 12.4 percent failure ratio. Societe Generale loan originator Suki Mann said that practically all refinancing and levered buyouts froze because of investor fringe. "I' ve been a borrower for 20 years and have never seen such a violent response to market risk, and things can get even tougher before they get better," he said.
There are similar concerns in Germany, where Jochen Sanio, chief of the Bafin finance supervisory authority, said that the loan crunch was threatening Europe with the worst possible banking crises since 1931. 5 billion (£2.4 billion) line of credit, whereas the state-owned KfW-Bank has provided a guaranty of \uAC8 billion (20 billion) for default. The Dresdner Wall said that it had entered into a $1.4 billion subprime US exposures but said it was well absorbed by the home deal.
Germany's Union Investment had to suspend withdrawals from a $1.1 billion subprime loan investment trust, and even the pharmacists' and doctors' bank acknowledged an exposition of $115 billion. Oddo & Cie will be closing three French subprime CDOs in France, which have been'affected by the subprime dilemma' and are incurring large subprime CDO loss sums.
AXA Versicherungsgruppe shut down two investment trusts affected by the loan turbulence after suffering an outbreak of redemption in July.