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The credit crunch continues its path of destruction as bond insurers lose billions!


This year is one that most owners of financial stocks would soon like to forget. Owners of AMBAC, a leading company that insurers bonds have seen their share price decline from bear $90 per share to now under $4 per share.

The leading company that provides insurance for bonds such as municipal and mortgage backed bonds today reported a net loss of over one billion dollars for the first quarter of 2008. This figure represents a sum larger than the companies market cap and is a sign that the credit crunch is leaving many companies as casualties. The danger with this scenario is that if AMBAC were to lose it's agency ratings, it would force all of the policies for which they have insured to increase their rates, forcing billions of dollars of charges to trickle through the economy. AMBAC plays a crucial role as they provide insurance for many local government municipalities that utilize bonds to raise money. If they face financial trouble, the carry over effect is a massive strain on local government throughout the country. Their financial trouble is directly linked to their exposure from insuring mortgage bonds and derivatives of large investment banks such as Bear Stearns. If AMBAC were to fail the markets would certainly be in jeopardy of a collosal sell off. AMBAC'c competitor, MBIA earlier this year was forced to raise over two billion of capital to help weather the storm. AMBAC raised over 1 billion of capital earlier this year. The fallout from the sub prime loan fiasco continues to pile up victims.

4-24-2008 ? LoanNetwork.com





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