360 Degrees of Subprime Lending

The "dot condo" CondoFlip Web site that encouraged investors/speculators to day-trade condominiums (and proudly declared that "Bubbles are for Bathtubs") has been dismantled and is no longer operational, replaced by a Condo Super Center. The site now admits, in a mea culpa, that "the condo boom was driven by overly-ambitious speculators, many of whom had been successful in flipping condos in the past. As condo inventories grew and prices rose, many speculators realized that further purchasing was increasingly risky. So, buyers just stopped buying."

There is an emerging credit crisis and it will lead to rapidly rising charge-offs. Construction lending on land and condominium loans are the next area to implode (examples of exposed intermediaries are Fulton Financial, National City and Corus Bancshares).

As night follows day, the enormous securitization markets will shortly begin to demonstrate the same sort of delinquencies we have witnessed in subprime mortgage lending. Then a continued acceleration of subprime loan problems will creep into the prime market (where equally creative mortgage loans have been made to prime borrowers).

Restrictive credit practices are just beginning to unfold as a consequence of the poor underwriting standards applied over the last decade. The more things change, the more they stay the same.

At time of publication, Kass and/or his funds had no positions in stocks mentioned, although holdings can change at any time.

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Too Late to Short Subprime

By Joe Capone

This was originally published on RealMoney on Feb. 15 at 2:21 p.m. ET.

Every market participant knows that the subprime mortgage industry is struggling and that many marginal players are being shut down. In the past several months, 22 subprime mortgage companies have been closed or acquired. The cost to insure against losses in subprime loans has soared.

And most people who own a house, live in a house or want to buy a house think they know everything about real estate. However, that doesn't mean they should go all-in shorting these mortgage stocks now. While short interest in the group is tremendous, I believe short sales are now too late.