Some comments on Subprime

• The catalyst for the global financial turmoil is investors coming to terms with the reality of the massive losses on their housing and mortgage-related investments. Of the approximately $2.5 trillion in subprime, Alt-A, and jumbo IO and option ARMs outstanding—equal to almost one-fourth of all mortgage debt outstanding—some $1.3 trillion is at serious risk of default (see chart). These at-risk loans were originated between late 2004 and early this year with less than 10% equity at time of origination. House prices are expected to decline 10% from their late 2005 peak to their nadir later next year. Of those at-risk loans, nearly $425 billion worth will actually default, ultimately resulting in losses to investors who purchased securities backed by those mortgages of well over $100 billion.

The above was taken from today's market wrap posted by Chris Puplava: Fragile, Handle With Care