Teetering hedge funds shake housing market

The Washington Times reports:

The impending collapse of big New York hedge funds that invested in risky subprime loans that went into default raised worries yesterday about a widening credit crunch for home buyers and yet another blow to the foundering housing market.

Investors, who provided much of the easy money loans that fueled the housing boom, will shun making such loans in the future as they increasingly get burned by rising mortgage defaults. Their withdrawal from the market, when combined with sharply higher interest rates and tightening credit standards by banks, will make getting home loans far more difficult than it was in recent years, analysts said.

Subprime borrowers, who are most prone to default and foreclosures, will have a particularly hard time getting mortgages, but investors looking to flip houses and young people with little credit history also likely will face far greater scrutiny as they apply for mortgages.

"You will be much, much worse off this year than last year if you are a subprime borrower," said one Wall Street analyst.

The credit crunch already is reverberating through the housing market, and it is particularly hurting first-time home buyers who make it possible for existing homeowners to trade up to bigger houses, quashing hopes for a recovery this year.

There will be more hedge funds having this same problem.