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Friday, December 08, 2006

US subprime loans face trouble (The Booming Bush Economy)

There has been a sharp rise in the number of borrowers behind on their payments. The loans are often packaged into securities and sold to investors to help lenders reduce risk.

In recent years, this area has been one of the fastest-growing parts of the market for mortgage-backed bonds. So far in 2006, $437bn of such securities have been issued in the US.

The securities have been big business for investment banks which have been buying up mortgage lenders to ensure a continued supply of loans. Merrill last year bought a stake in Ownit, which made $5.5bn of loans in the first half of 2006. Ownit closed down this week after JPMorgan Chase, its main lender, cut off its funding.

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