One Final Letter from New York

Amongst discussions we had last week, a growing concern over delinquencies within the subprime mortgage market raised its head. The $1.3 trillion subprime mortgage market, which is a bit more than a tenth of the overall US mortgage market, caters to home buyers with poor credit records or those who might have trouble paying off their mortgages.


Concern has been growing in the US as the yield demanded by lenders has risen significantly from 2.4% above money market interest rates to 3.8% above in a matter of weeks. At the same time two smaller subprime lenders, Ownit Mortgage Solutions and Sebring CapitalPartners, have folded in recent weeks. Some big subprime lenders, including H&R Block Inc.’s Option One Mortgage, are up for sale.

The overall impact on the US mortgage market is not that significant whilst liquidity remains high and general default rates remain at low levels, however, if this situation was to change – coupled with what is already a fragile housing market – then the impact could, potentially, be far greater.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Stefan Isaacs

Job Title: Deputy CIO Public Fixed Income

Specialist Subjects: Bonds

Likes: Football, travel and the prospect of retirement

Heroes: Sir David Attenborough, Bill Shankly and Theodor Herzl

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