October 22 – Bloomberg (Poppy Trowbridge): “U.S. banks, burdened by loans they promised prior to the recent liquidity shortage, will curb their lending and may spark a broader credit crisis, the Wall Street journal reported. Banks now use tighter lending criteria as a result of losses suffered from defaults in subprime mortgages and the effect of lending commitments made before the crisis, which they still have to honor, the Journal said, citing Michael Bauer, an executive vice president at MainSource Financial Group Inc…”

October 24 – Bloomberg (Jody Shenn): “European and Asian investors will avoid most U.S. mortgage-backed securities for years without guarantees from government-linked entities, creating ‘an enormous drag on the U.S. housing market,’ according to UBS AG. During the current ‘shutdown’ of the subprime and Alt-A mortgage-securities markets, it’s been ‘virtually impossible’ to find buyers for anything but the safest classes of such bonds…UBS analysts led by Laurie Goodman wrote… Surging losses on the loans will worsen as the credit crunch makes it harder for borrowers with adjustable-rate mortgages to lower their payments by refinancing, they wrote. Foreclosures started on U.S. loans rose at the highest rate on record in the second quarter, the Mortgage Bankers Association says. ‘The `virtuous' cycle of the past few years has evolved into a ‘vicious' cycle,’ the UBS analysts wrote.”

October 24 – The Wall Street Journal (Ruth Simon and James R. Hagerty): “Subprime mortgages aren’t the only challenge facing Countrywide Financial Corp., the nation’s biggest home-mortgage lender. Some loans classified as prime when they were originated are now going bad at a rapid pace. These loans are known as option adjustable-rate mortgages, or option ARMs. They typically have low introductory rates and allow minimal payments in the early years of the mortgage. Multiple payment choices include a minimum payment that covers none of the principal and only part of the interest normally due. If borrowers choose that minimum payment, their loan balances grow – a phenomenon known as ‘negative amortization…’ Among option ARMs held in its own portfolio, 5.7% were at least 30 days past due as of June 30, the measure Countrywide uses. That’s up from 1.6% a year earlier. Countrywide held $27.8 billion of option ARMs as of June 30, accounting for about 41% of the loans held as investments by its savings bank. An additional $122 billion have been packaged into securities sold to investors, according to UBS… It now appears that many borrowers who moved into option ARMs were attracted by the low payments and may have been staving off other financial problems. More than 80% of borrowers who are current on these loans make only the minimum payment, according to UBS… Of the option ARMs it issued last year, 91% were "low-doc" mortgages in which the borrower didn't fully document income or assets, according to UBS, compared with an industry average of 88% that year. In 2004, 78% of Countrywide’s option ARMs carried less than full documentation. Countrywide also allowed borrowers to put down as little as 5% of a home’s price and offered ‘piggyback mortgages,’ which allow borrowers to finance more than 80% of a home’s value without paying for private mortgage insurance. By 2006, nearly 29% of the option ARMs originated by Countrywide and packaged into mortgage securities had a combined loan-to-value of 90% or more, up from just 15% in 2004, according to UBS."