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Bearish on housing since February 2007, it comes as no shock to me that housing is an absolute mess. Nor is it a shock that the ABX Index, which allows investors to hedge bets for securities backed by mortgage bonds, is continuing to plummet on risky loan deterioration. Today alone, the ABX BBB- index, attributed to loans made during the second half of 2006, fell below a record close of 48.64.
The best definition I've found for the "ABX" comes from a much-used housing derivatives blog, which says, "The ABX Index is a program of credit-default swaps on sub-prime mortgage bonds that offer payments to buyers of protection if the securities aren't repaid as expected."
And even if you haven't a clue as to what that means, one look at the chart included in Wednesday, July 18's Chart of the Day is enough to send the shrewdest of investors to the nearest exit doors, ears covered, eyes shut, screaming for mercy.
Sure, credit agencies have downgraded subprime residential mortgage-backed securities on the basis on credit erosion and further subprime deterioration, but even the credit agencies don't have a clue as to what's around the corner. The question to keep in mind is this. Just how many borrowers over the next year will default on their subprime loans? With home values plummeting and lending standards tightening, there's a greater risk for more fallout.
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