Lenders New Century and HSBC finally admit problems, but the bulls still don't want to see the obvious: A negative economic reaction is inevitable
By Bill Fleckenstein -- MSNBC
Feb. 19, 2007 -- Reality kidnapped Goldilocks on Feb. 8, if only fleetingly. That's when folks took to heart negative announcements from mortgage lenders New Century Financial and HSBC.
From New Century (NEW, news, msgs) came word that (a) its financials were basically no good and that (b) it hadn't properly accounted for loans it had sold to other institutions and that might now be sent back..
Even more important was the news from HSBC (HBC, news, msgs), regarded as a good operator, which revealed that it was going to take its mortgage loan-loss reserves from $8.8 billion and change to $10.6 billion and change. The disconcerting conclusion reached by HSBC, as described recently in The Wall Street Journal:
"Its systems for screening subprime borrowers and for assessing the default risk they posed were flawed. Many of those loans have soured, sometimes quickly. The percentage of HSBC mortgages more than 60 days past due is climbing. Fraud by borrowers has been higher than expected."
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