Efforts by major banks and Wall Street firms to unload bad U.S. housing loans are speeding up a shakeout in the subprime mortgage industry.
As more Americans fall behind on mortgage payments, Merrill Lynch & Co., J.P. Morgan Chase & Co., HSBC Holdings PLC and others are trying to force mortgage originators to buy back the same high-risk, high-return loans that the big banks eagerly bought in 2005 and 2006.
The MSM has awoken to the fact that the MBS market is toast.
Investment-banking firms and investment firms that bought mortgage-backed securities are hiring firms to scrutinize subprime portfolios for loans that violate contracts.
Clayton Holdings Inc. is working with a half-dozen investment-banking firms to identify loans that should be repurchased. Clayton has also been hired by two hedge funds to review mortgage bonds they own for potential repurchases.
The bag holders realize they are holding a "hot potatoe."
Credit Suisse analyst Rod Dubitsky said he expects repurchases to continue to rise for the next six months.
Umm... wait a second. Current repurchases are bankrupting the mortgage companies. Six more months of RISING buybacks?
This means only one thing.