Subprime mortgage market in trouble

The San Jose Mercury News reports:

Growing numbers of the companies that make or invest in subprime mortgages are themselves facing financial distress, and some have shut their doors or filed for bankruptcy protection. HSBC Holdings PLC, Europe's largest bank and a major subprime lender in this country, shocked Wall Street recently by announcing that home loan delinquencies are so bad that it has set aside $10.6 billion to cover potential losses.

New Century Financial Corp., a California-based subprime lender, saw its stock plunge 36 percent in a single day when it announced that ``buybacks'' of delinquent loans have been more numerous -- and more costly -- than anticipated. Subprime lenders are required by Wall Street bond investors to repurchase loans that go into serious default early in their terms, suggesting poor underwriting, bad appraisals or other issues.

Leverage on the way up means contraction.Don't say you haven't been warned.