| JP Morgan loses $1.5bn on risky mortgages
JP Morgan Chase & Co's quarterly profit fell a worse-than-expected 24 per cent as the bank lost $US1.3 billion ($1.5 billion) on risky mortgages and set aside more money for rising losses on home-equity loans. Investors, however, rewarded JPMorgan for turning a profit while some US banks post huge losses from bad bets on subprime mortgage-related securities. JPMorgan shares were up 7 per cent in afternoon trade. JP Morgan chief executive Jamie Dimon was bearish about consumer credit quality, but he said rough financial markets made it more likely the bank would make an acquisition. Still, JP Morgan has significant exposure to cash-strapped US consumers who face higher energy and food costs while they watch the value of their homes slide. "Though the numbers were slightly weak, you have to give Jamie Dimon credit for avoiding most of the problems that have plagued his competitors," said Thomas Russo, a partner at Gardner Russo & Gardner, where he helps invest more than $US3 billion.
New alarm: Option-ARM 'liar's loans'
The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans, adjustable-rate mortgages that allow borrowers to pay so little every month that their loan balances rise rather than fall, sometimes sharply.
Numbers from industry trackers suggest that these borrowers, most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity, are starting to create a second tide of defaults for lenders swamped by the meltdown in subprime loans made to people with bad credit or overstretched finances.
Countrywide Financial Corp., the top option-ARM lender, will be hit hard. Already reeling from the subprime mess, Countrywide was rescued from possible bankruptcy this month by Bank of America Corp., which agreed to acquire it for about $4 billion.
Secured homeowner loans – An added advantage
Taking a loan against your home is a traditional and time-tested way of borrowing money. This is the only way that allows you to borrow large amount of money. Otherwise, lenders do not sanction a large amount. The equity that your home holds in the market is taken into consideration before sanctioning any loan. The maximum loan to equity ratio is usually 100 per cent. It means that if your home has a value of £250,000, you may get a loan of an equal amount. In the prevailing circumstances in the UK financial markets, lenders have been badly affected by the global credit crunch. Their cost of borrowing has increased and, therefore, the lending rates are also going in the upward direction. Many lenders have even withdrawn unsecured personal loans from the market. However, if you have a good credit history, you can easily get better interest rates on secured homeowner loans.
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