I was looking for some info on a mortgage lender that I heard went under, when I stumbled onto this website.
http://ml-implode.com/ The Mortgage Lender Implode-O-Meter
The site identifies the 12 lenders that have "imploded" since Dec '06, as well as at-risk lenders. They also have links to what they call "The Top Mortgage Banking Bust News and Commentary", as well as links to blogs on the Housing and Credit Busts.
Thought some of you might find it interesting.
Replies
101Beach FanaticAuthor
Another terrific article on the subprime debacle.
This one, from Morningstar, is about the role the big banks/warehouses are playing in the subprime implosion. Its a long article, but has lots of good details and is a worthwhile read.
http://news.morningstar.com/news/Vi...J/200702161211DOWJONESDJONLINE000642_univ.xml
UPDATE: Big Banks Deciding The Fates Of Troubled Subprime Lenders2-16-07 12:11 PM EST | E-mail Article | Print Article SAN FRANCISCO (Dow Jones) -- A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. and J.P. Morgan Chase.
Several private subprime lenders, such as Ownit Mortgage Solutions, Mortgage Lenders Network USA and ResMAE Mortgage Corp., have already filed for bankruptcy protection after having financial lifelines cut by Merrill (MER) and other big banks.
The fate of other publicly traded subprime specialists, such as New Century ( NEW) and Novastar Financial (NFI) , may also rest in the hands of big banks that have helped finance their recent rapid expansion, analysts said.
Others, such as Fieldstone Investment (FICC) , are being acquired by stronger financial-services companies.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. While these loans remain a small part of the home lending industry, they've helped more people buy homes who previously couldn't afford it, helping to fuel a surge in housing prices in 2004 and 2005.
That's why the credit crunch in the subprime market is being so closely watched by investors, economists and policymakers. By cutting off access to credit for these extra buyers, demand for homes may fall further, depressing prices and fueling a broader slowdown in the U.S. housing market.
"This distress in the subprime area is a significant concern," Ben Bernanke said on Wednesday. While noting that the contraction has yet to reach a point where it will affect overall economic expansion, the Federal Reserve chairman said he's monitoring developments.
"There are some loans that have been made that are not turning out well, and to the detriment of both the lenders and the borrowers," he said. "We will certainly be watching that carefully and trying to provide guidance and oversight to minimize that risk going forward."
Lifelines
Most subprime specialists sell the loans they've originated to big banks, which then package them up and sell them on again as mortgage-backed securities to hedge funds and other institutional investors.
It usually takes at least several weeks for subprime specialists to sell their loans. During that time, big banks provide a "warehouse" in which to store them. In return for passing the loan onto these warehouse lenders, the originators get cash equal to the value of the asset, minus a fee, called a "haircut", which provides a cushion against late payments and delinquencies.
The warehouse banks, such as Merrill. J.P. Morgan Chase (JPM) , Citigroup (C) and Bank of America (BAC) , are crucial to this process because they keep subprime lenders supplied with enough cash to help them make more loans immediately.
But as more subprime borrowers struggle to meet their monthly mortgage payments, cracks have begun to form in this system.
Warehouse lenders have started worrying about the quality of subprime loans that have been originated in recent years. Some are now asking subprime specialists for bigger haircuts, putting the originators in financial peril and forcing some into bankruptcy.
"Warehouse lenders are the lifelines for a lot of these subprime originators because they don't have the financial capacity to fund these loans by themselves," Ernie Napier, head of the specialty finance team at rating agency Standard & Poor's, said. "To the extent that these warehouse lenders go away, the whole process starts to unravel."
Pulling the plug
Mortgage Lenders Network USA, the 15th largest subprime company in the U.S., filed for bankruptcy protection this month.
As more borrowers defaulted early on the company's loans at the end of 2006, it tightened lending standards. It also introduced a new product, but mispriced it. After making at least $600 million in new loans with this product, Mortgage Lenders Network had to sell them at a loss in the secondary market.
Some of the company's warehouse lenders, which included Merrill and Goldman Sachs (GS) , cut back their financing, forcing Mortgage Lenders Network to post more collateral. When it couldn't come up with the extra cash, some of these lenders refused to advance any more money and the company had to shut down, according to its bankruptcy filing.
"The impression was that the warehouse lenders put them up against the wall and then pulled the plug," S&P's Napier said.
Ownit, one of the fastest growing subprime originators which was partly owned by Merrill, filed for bankruptcy on Dec. 28.
In November, J.P. Morgan Chase, which had provided warehouse financing since late 2003, said it planned to shut down the facility by the middle of December. Merrill then made a margin call, sweeping up about $15 million of the company's cash, leaving it with roughly $7.4 million in liquid funds, according to Ownit's filing.
Later that month, J.P. Morgan Chase decided not to fund loans Ownit had recently made and froze the rest of its money, Ownit said. By Dec. 5, Ownit said it had to lay off most of its employees.
Mystery margin caller
In recent weeks, warnings from banking giant HSBC Holdings (HBC) and New Century have shaken subprime confidence further, sparking speculation that a major bank is aggressively making margin calls.
Accredited Home Lenders (LEND) has had to come up with more cash after getting margin calls from some of its warehouse lenders, Stuart Marvin, executive vice president at the subprime specialist told analysts during a conference call on Wednesday.
"We have eight different warehouse lenders; I would say the majority of them are acting very rationally," Marvin said. "There is one that is acting somewhat irrationally, although I won't mention them by name. We have migrated the fundings away from that warehouse lender to one of the other seven until they begin to act more rationally again."
Industry publication National Mortgage News said this week that Merrill Lynch has been making margins calls. A Merrill spokesman declined to comment.
In late January, J.P. Morgan Chief Executive Jamie Dimon noted rising defaults in some of its riskiest home loans and said the bank had largely exited the subprime business.
Repurchase redux
Big banks are clamping down on subprime specialists in other ways too.
When originators sell loans on to big banks, the buyers have the right to send them back in certain circumstances, including when borrowers fail to make payments during the first month or two. In those cases, the originator is forced to repurchase the loans.
Early payment defaults have jumped for subprime loans made in recent years, forcing higher-than-expected repurchases by originators like New Century, Fremont and Accredited.
Big repurchases can threaten the survival of subprime originators because they can struggle to come up with the extra cash needed to buy the loans back.
ResMAE Mortgage Corp., which had quickly become the 20th largest subprime specialist in the U.S., filed for bankruptcy this week and said it plans to sell most of its assets to Credit Suisse (CS) for $19 million.
By early 2005, loan originations began to wane, knocking ResMAE's profitability. By cutting costs and lifting the interest rates it charged on loans, the company said it was able to make a small profit last year "despite the industry collapsing around it."
But then Merrill Lynch, which had become the largest buyer of ResMAE's loans, asked the company to repurchase more than $300 million worth of loans. That " enormous" repurchase request, which ResMAE disputes, triggered a liquidity crisis and forced the company to put itself up for sale.
The repurchase demands "crippled ResMAE's operations by requiring the company to post enormous reserves, which dramatically reduced its capital and operating liquidity," the company said in its filing.
New Century, new problems
New Century shares lost more than a third of their value last week after the mortgage services provider slashed its forecast for loan production this year because early-payment defaults and loan repurchases have led to tighter underwriting guidelines.
The company said it has to restate most of its results from 2006 because of mistakes in how it accounted for losses on repurchased loans.
New Century got into trouble because its systems didn't predict the level of repurchases accurately enough, said Zack Gast, a financial sector analyst at the Center for Financial Research and Analysis (CFRA), a research firm.
The company was particularly aggressive in how it accounted for the cost of buying back loans, Gast explained.
The conservative approach is to set aside money based on the assumption that if forced to repurchase problem loans, originators will likely have to resell again them at a lower price, Gast said.
Instead, New Century only provisioned for the cost of repurchasing the loans. Once those assets were back on its balance sheet, the company recorded 100% of their value, Gast noted.
"The pool of loans sitting on their balance sheet has been valued at the wrong price," he concluded.
New Century's problems have sparked concern that the company could be next on warehouse lenders' hit list.
"Investors and warehouse lenders could lose confidence in New Century," Merrill Lynch analyst Kenneth Bruce wrote in a note to clients on Feb. 8. "New Century's business model is highly reliant on liquidity, so if investor confidence deteriorates and credit facilities are constrained, a liquidity event could ensue."
"Finance companies that go out of business usually do so because of a lack of liquidity," Bruce reminded his clients ominously.
New Century has financing agreements with lots of large banks including Bear Stearns (BSC) , Citigroup, Credit Suisse, Deutsche Bank (DB) , Morgan Stanley ( MS) , UBS AG (UBS) and Goldman.
The contracts include covenants requiring New Century to maintain minimum levels of liquidity and debt levels. If those are breached, the lenders can terminate the agreements and demand their money back immediately.
New Century is currently required to keep liquidity levels to at least $134.4 million, according to its latest quarterly results filing with the Securities and Exchange Commission. The company said last week that it had cash and liquidity in excess of $350 million at the end of 2006.
S&P cut its credit rating on New Century last week to BB- from BB and warned of further downgrades, partly because the company might breach its main warehouse loan covenants, triggering a liquidity crisis.
Who's next?
After the warnings from New Century and HSBC, warehouse lenders are probably now deciding which subprime originators to continue backing and which ones to drop, CFRA's Gast said.
"If all lenders increase their margin requirements that would probably result in bankruptcy," he said. "If you can't come up with the extra cash, then the warehouse lenders will step in and shut you down."
But which other subprime specialists are in peril?
Gast said that depends partly on companies' liquidity and how aggressive they've been in accounting for repurchased loans.
Accredited Home Lenders has taken the most conservative in its accounting, setting aside money to cover the cost of reselling loans at lower prices, Gast said. That approach knocked its shares last year, but now investors are rewarding the company, he noted.
"Their stock had been punished, but it turns out that they were the ones taking an appropriately conservative approach," Gast said.
Accredited shares are down less than 10% so far this year, while New Century stock has lost 40%. Last year though, Accredited shares tumbled 44% while New Century fell less than 20%.
Gast wouldn't comment specifically on other subprime lenders. But in a Dec. 19 report on the subprime shakeout, the analyst ranked originators based on accounting and liquidity risk.
New Century was the riskiest, followed by Novastar, Fieldstone, Fremont and Accredited.
"In the current liquidity environment, CFRA does not believe any lender is at low risk," he wrote. "All lenders are showing signs of credit quality deterioration."
A way out
Selling to a stronger financial-services company is one way out for subprime specialists.
Fieldstone agreed on Friday to be acquired by an affiliate of mortgage insurers MGIC Investment (MTG) and Radian Group (RDN) for $5.53 a share, or roughly $260 million.
The purchase price is almost double where Fieldstone's shares were trading yesterday and the stock surged 96% on Friday. However, the offer is roughly half where Fieldstone's shares were trading a year ago.
In August, Morgan Stanley bought Saxon Capital, a subprime mortgage servicer and lender, for $706 million. A month later Merrill acquired First Franklin for more than $1 billion.
But this type of exit may be more difficult for some subprime originators like New Century.
"The fluidity problems at New Century could undermine or prolong a sale," Merrill's Bruce said. "Only a limited number of buyers may seriously consider a take-out."
Meltdown underway
CFRA's Gast was reluctant to say whether things will get worse for the subprime industry, or estimate when the situation might improve. However, other experts are concerned about the immediate future.
While most of Accredited's warehouse lenders have remained rational, Marvin suggested these big banks could take a tougher approach to rival subprime specialists with less liquidity.
"The long-awaited meltdown in subprime mortgage lending is now underway, and it likely has further to go," Richard Berner, chief U.S. economist at Morgan Stanley, wrote in a note to clients this week. "More subprime lenders may fold, and the supply of subprime credit likely will tighten further."
This one, from Morningstar, is about the role the big banks/warehouses are playing in the subprime implosion. Its a long article, but has lots of good details and is a worthwhile read.
http://news.morningstar.com/news/Vi...J/200702161211DOWJONESDJONLINE000642_univ.xml
UPDATE: Big Banks Deciding The Fates Of Troubled Subprime Lenders2-16-07 12:11 PM EST | E-mail Article | Print Article SAN FRANCISCO (Dow Jones) -- A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. and J.P. Morgan Chase.
Several private subprime lenders, such as Ownit Mortgage Solutions, Mortgage Lenders Network USA and ResMAE Mortgage Corp., have already filed for bankruptcy protection after having financial lifelines cut by Merrill (MER) and other big banks.
The fate of other publicly traded subprime specialists, such as New Century ( NEW) and Novastar Financial (NFI) , may also rest in the hands of big banks that have helped finance their recent rapid expansion, analysts said.
Others, such as Fieldstone Investment (FICC) , are being acquired by stronger financial-services companies.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. While these loans remain a small part of the home lending industry, they've helped more people buy homes who previously couldn't afford it, helping to fuel a surge in housing prices in 2004 and 2005.
That's why the credit crunch in the subprime market is being so closely watched by investors, economists and policymakers. By cutting off access to credit for these extra buyers, demand for homes may fall further, depressing prices and fueling a broader slowdown in the U.S. housing market.
"This distress in the subprime area is a significant concern," Ben Bernanke said on Wednesday. While noting that the contraction has yet to reach a point where it will affect overall economic expansion, the Federal Reserve chairman said he's monitoring developments.
"There are some loans that have been made that are not turning out well, and to the detriment of both the lenders and the borrowers," he said. "We will certainly be watching that carefully and trying to provide guidance and oversight to minimize that risk going forward."
Lifelines
Most subprime specialists sell the loans they've originated to big banks, which then package them up and sell them on again as mortgage-backed securities to hedge funds and other institutional investors.
It usually takes at least several weeks for subprime specialists to sell their loans. During that time, big banks provide a "warehouse" in which to store them. In return for passing the loan onto these warehouse lenders, the originators get cash equal to the value of the asset, minus a fee, called a "haircut", which provides a cushion against late payments and delinquencies.
The warehouse banks, such as Merrill. J.P. Morgan Chase (JPM) , Citigroup (C) and Bank of America (BAC) , are crucial to this process because they keep subprime lenders supplied with enough cash to help them make more loans immediately.
But as more subprime borrowers struggle to meet their monthly mortgage payments, cracks have begun to form in this system.
Warehouse lenders have started worrying about the quality of subprime loans that have been originated in recent years. Some are now asking subprime specialists for bigger haircuts, putting the originators in financial peril and forcing some into bankruptcy.
"Warehouse lenders are the lifelines for a lot of these subprime originators because they don't have the financial capacity to fund these loans by themselves," Ernie Napier, head of the specialty finance team at rating agency Standard & Poor's, said. "To the extent that these warehouse lenders go away, the whole process starts to unravel."
Pulling the plug
Mortgage Lenders Network USA, the 15th largest subprime company in the U.S., filed for bankruptcy protection this month.
As more borrowers defaulted early on the company's loans at the end of 2006, it tightened lending standards. It also introduced a new product, but mispriced it. After making at least $600 million in new loans with this product, Mortgage Lenders Network had to sell them at a loss in the secondary market.
Some of the company's warehouse lenders, which included Merrill and Goldman Sachs (GS) , cut back their financing, forcing Mortgage Lenders Network to post more collateral. When it couldn't come up with the extra cash, some of these lenders refused to advance any more money and the company had to shut down, according to its bankruptcy filing.
"The impression was that the warehouse lenders put them up against the wall and then pulled the plug," S&P's Napier said.
Ownit, one of the fastest growing subprime originators which was partly owned by Merrill, filed for bankruptcy on Dec. 28.
In November, J.P. Morgan Chase, which had provided warehouse financing since late 2003, said it planned to shut down the facility by the middle of December. Merrill then made a margin call, sweeping up about $15 million of the company's cash, leaving it with roughly $7.4 million in liquid funds, according to Ownit's filing.
Later that month, J.P. Morgan Chase decided not to fund loans Ownit had recently made and froze the rest of its money, Ownit said. By Dec. 5, Ownit said it had to lay off most of its employees.
Mystery margin caller
In recent weeks, warnings from banking giant HSBC Holdings (HBC) and New Century have shaken subprime confidence further, sparking speculation that a major bank is aggressively making margin calls.
Accredited Home Lenders (LEND) has had to come up with more cash after getting margin calls from some of its warehouse lenders, Stuart Marvin, executive vice president at the subprime specialist told analysts during a conference call on Wednesday.
"We have eight different warehouse lenders; I would say the majority of them are acting very rationally," Marvin said. "There is one that is acting somewhat irrationally, although I won't mention them by name. We have migrated the fundings away from that warehouse lender to one of the other seven until they begin to act more rationally again."
Industry publication National Mortgage News said this week that Merrill Lynch has been making margins calls. A Merrill spokesman declined to comment.
In late January, J.P. Morgan Chief Executive Jamie Dimon noted rising defaults in some of its riskiest home loans and said the bank had largely exited the subprime business.
Repurchase redux
Big banks are clamping down on subprime specialists in other ways too.
When originators sell loans on to big banks, the buyers have the right to send them back in certain circumstances, including when borrowers fail to make payments during the first month or two. In those cases, the originator is forced to repurchase the loans.
Early payment defaults have jumped for subprime loans made in recent years, forcing higher-than-expected repurchases by originators like New Century, Fremont and Accredited.
Big repurchases can threaten the survival of subprime originators because they can struggle to come up with the extra cash needed to buy the loans back.
ResMAE Mortgage Corp., which had quickly become the 20th largest subprime specialist in the U.S., filed for bankruptcy this week and said it plans to sell most of its assets to Credit Suisse (CS) for $19 million.
By early 2005, loan originations began to wane, knocking ResMAE's profitability. By cutting costs and lifting the interest rates it charged on loans, the company said it was able to make a small profit last year "despite the industry collapsing around it."
But then Merrill Lynch, which had become the largest buyer of ResMAE's loans, asked the company to repurchase more than $300 million worth of loans. That " enormous" repurchase request, which ResMAE disputes, triggered a liquidity crisis and forced the company to put itself up for sale.
The repurchase demands "crippled ResMAE's operations by requiring the company to post enormous reserves, which dramatically reduced its capital and operating liquidity," the company said in its filing.
New Century, new problems
New Century shares lost more than a third of their value last week after the mortgage services provider slashed its forecast for loan production this year because early-payment defaults and loan repurchases have led to tighter underwriting guidelines.
The company said it has to restate most of its results from 2006 because of mistakes in how it accounted for losses on repurchased loans.
New Century got into trouble because its systems didn't predict the level of repurchases accurately enough, said Zack Gast, a financial sector analyst at the Center for Financial Research and Analysis (CFRA), a research firm.
The company was particularly aggressive in how it accounted for the cost of buying back loans, Gast explained.
The conservative approach is to set aside money based on the assumption that if forced to repurchase problem loans, originators will likely have to resell again them at a lower price, Gast said.
Instead, New Century only provisioned for the cost of repurchasing the loans. Once those assets were back on its balance sheet, the company recorded 100% of their value, Gast noted.
"The pool of loans sitting on their balance sheet has been valued at the wrong price," he concluded.
New Century's problems have sparked concern that the company could be next on warehouse lenders' hit list.
"Investors and warehouse lenders could lose confidence in New Century," Merrill Lynch analyst Kenneth Bruce wrote in a note to clients on Feb. 8. "New Century's business model is highly reliant on liquidity, so if investor confidence deteriorates and credit facilities are constrained, a liquidity event could ensue."
"Finance companies that go out of business usually do so because of a lack of liquidity," Bruce reminded his clients ominously.
New Century has financing agreements with lots of large banks including Bear Stearns (BSC) , Citigroup, Credit Suisse, Deutsche Bank (DB) , Morgan Stanley ( MS) , UBS AG (UBS) and Goldman.
The contracts include covenants requiring New Century to maintain minimum levels of liquidity and debt levels. If those are breached, the lenders can terminate the agreements and demand their money back immediately.
New Century is currently required to keep liquidity levels to at least $134.4 million, according to its latest quarterly results filing with the Securities and Exchange Commission. The company said last week that it had cash and liquidity in excess of $350 million at the end of 2006.
S&P cut its credit rating on New Century last week to BB- from BB and warned of further downgrades, partly because the company might breach its main warehouse loan covenants, triggering a liquidity crisis.
Who's next?
After the warnings from New Century and HSBC, warehouse lenders are probably now deciding which subprime originators to continue backing and which ones to drop, CFRA's Gast said.
"If all lenders increase their margin requirements that would probably result in bankruptcy," he said. "If you can't come up with the extra cash, then the warehouse lenders will step in and shut you down."
But which other subprime specialists are in peril?
Gast said that depends partly on companies' liquidity and how aggressive they've been in accounting for repurchased loans.
Accredited Home Lenders has taken the most conservative in its accounting, setting aside money to cover the cost of reselling loans at lower prices, Gast said. That approach knocked its shares last year, but now investors are rewarding the company, he noted.
"Their stock had been punished, but it turns out that they were the ones taking an appropriately conservative approach," Gast said.
Accredited shares are down less than 10% so far this year, while New Century stock has lost 40%. Last year though, Accredited shares tumbled 44% while New Century fell less than 20%.
Gast wouldn't comment specifically on other subprime lenders. But in a Dec. 19 report on the subprime shakeout, the analyst ranked originators based on accounting and liquidity risk.
New Century was the riskiest, followed by Novastar, Fieldstone, Fremont and Accredited.
"In the current liquidity environment, CFRA does not believe any lender is at low risk," he wrote. "All lenders are showing signs of credit quality deterioration."
A way out
Selling to a stronger financial-services company is one way out for subprime specialists.
Fieldstone agreed on Friday to be acquired by an affiliate of mortgage insurers MGIC Investment (MTG) and Radian Group (RDN) for $5.53 a share, or roughly $260 million.
The purchase price is almost double where Fieldstone's shares were trading yesterday and the stock surged 96% on Friday. However, the offer is roughly half where Fieldstone's shares were trading a year ago.
In August, Morgan Stanley bought Saxon Capital, a subprime mortgage servicer and lender, for $706 million. A month later Merrill acquired First Franklin for more than $1 billion.
But this type of exit may be more difficult for some subprime originators like New Century.
"The fluidity problems at New Century could undermine or prolong a sale," Merrill's Bruce said. "Only a limited number of buyers may seriously consider a take-out."
Meltdown underway
CFRA's Gast was reluctant to say whether things will get worse for the subprime industry, or estimate when the situation might improve. However, other experts are concerned about the immediate future.
While most of Accredited's warehouse lenders have remained rational, Marvin suggested these big banks could take a tougher approach to rival subprime specialists with less liquidity.
"The long-awaited meltdown in subprime mortgage lending is now underway, and it likely has further to go," Richard Berner, chief U.S. economist at Morgan Stanley, wrote in a note to clients this week. "More subprime lenders may fold, and the supply of subprime credit likely will tighten further."
Edited
SoWal Insider
Your explanation is somewhat correct...Its an alternative and very cheap way to generate capital..I think its bad move on their part because they loose their autonomy and it completely changes the way they have to account and report...But once again why is it a sucker bet......Have you ever done PE?...The returns are quite good (typically 1.5-2.25 multiple invested)...You certainly seem to be anti-establishment...Why shouldn't you be able to participate in something you have been precluded from previously...Did my vote help you, or your taxes?
Oh Bob, that patriotism can be a real hindrance...I guess if you knew then what you know now, you wouldn't have voted for him...Sounds familiar...Anyway, thanks again for votin' W
SoWal Insider
Your explanation is somewhat correct...Its an alternative and very cheap way to generate capital..I think its bad move on their part because they loose their autonomy and it completely changes the way they have to account and report...But once again why is it a sucker bet......Have you ever done PE?...The returns are quite good (typically 1.5-2.25 multiple invested)...You certainly seem to be anti-establishment...Why shouldn't you be able to participate in something you have been precluded from previously...
You most certainly can throw money at anything...and, as in the past, you'll find the big guys have already eaten the choicest cuts before throwing open the doors to the scavengers to pick the bones--for a fee, of course ;-) .
Beach Fanatic
You most certainly can throw money at anything...and, as in the past, you'll find the big guys have already eaten the choicest cuts before throwing open the doors to the scavengers to pick the bones--for a fee, of course ;-) .
Once again, your class envy and inexperience cloud your judgement...If you knew anything about the structures, YOU'D find that there are no extra choice cuts to take...Typically structured as partnerships (both general and limited) % participation is realized and distributed anytime a trans. is realized...The "big guys" take their cut as a % of profits with add'l payouts for the amt of their own personal capital invested (typically 5% of the fund) + maint. fees usually less than 2%..
It must be a shame to feel your being dumped on "by the man" at every turn and then be forced to invest in that same market at some perceived disadvantage due to position in the system...Red
Edited
Beach FanaticAuthor
Once again, your class envy and inexperience cloud your judgement...Red
People WITH "class" don't spend nearly as much time talking about "class" as you do.
SoWal Insider
Red, I hope you're not one of those Repubs who can't get past the country club security gate. It's embarrassing to be alone.
Beach Fanatic
People WITH "class" don't spend nearly as much time talking about "class" as you do.
bdc63, Wrong kinda "class", but apologies if I was offensive...
Bob, I wouldn't worry 'bout me...this is one lemming that's ok...How 'bout you?..Red
Edited
SoWal Insider
bdc63, Wrong kinda "class", but apologies if I was offensive...I would need an aquaintance for any tee time at Country Club of Orlando. Jesus himself would need strong financials to become a member. He would also have to lie about his religion.
Bob, I wouldn't worry 'bout me...this is one lemming that's ok...How 'bout you?..Red
Edited
Beach Fanatic
NovaStar Financial just reported earnings after hours tonight..
The bottom apparently is not in... we're just getting to that point when the band is still playing on the deck of the ship, as the last lifeboat is being unloaded.
Stock, symbol NFI, which is one of the largest subprime players, the other being New Century Financial (symbol NEW) and other being Accredited Home Lenders (LEND)... stock was $17 and change 10 minutes ago
last trade in after hours, was in the $12 range...
We're at the point where the music is about to stop, and the sharks begin to circle from afar...
a stock that has dropped 70% in the last 12 months, drops another 50% in after hours trading tonight..
makes granite countertops a tough punching bag if you threw in a few bucks hoping to "find the bottom" down only 70% at $17 yesterday... or today before market closed for that matter
yikes
The bottom apparently is not in... we're just getting to that point when the band is still playing on the deck of the ship, as the last lifeboat is being unloaded.
Stock, symbol NFI, which is one of the largest subprime players, the other being New Century Financial (symbol NEW) and other being Accredited Home Lenders (LEND)... stock was $17 and change 10 minutes ago
last trade in after hours, was in the $12 range...
We're at the point where the music is about to stop, and the sharks begin to circle from afar...
a stock that has dropped 70% in the last 12 months, drops another 50% in after hours trading tonight..
makes granite countertops a tough punching bag if you threw in a few bucks hoping to "find the bottom" down only 70% at $17 yesterday... or today before market closed for that matter
yikes
Beach Fanatic
Yeah, T. Boone Pickens is an idiot too with his mutant son, Jim Cramer. They're calling for oil to be 100+ range.
Oil was 10 bucks a barrel in 98.
Beach FanaticAuthor
NovaStar Financial just reported earnings after hours tonight..
yikes
Yikes, is right!
NovaStar has/had(?) REIT status, and paid out a whopping 30% dividend. With their anouncement last night, they stated that they would have virtually no "taxable income" through 2011 ... NO taxable income equals NO dividend.
I'm surpized that the stock price is only down 30%ish this morning. People own this stock for the dividend, and that just went to zero ... for the next five years!
I wonder what kind of trickle down affect this will have on the overall REIT market ....
Edited
SoWal Insider
Yikes, is right!
NovaStar has/had(?) REIT status, and paid out a whopping 30% dividend. With their anouncement last night, they stated that they would have virtually no "taxable income" through 2011 ... NO taxable income equals NO dividend.
I'm surpized that the stock price is only down 30%ish this morning. People own this stock for the dividend, and that just went to zero ... for the next five years!
I wonder what kind of trickle down affect this will have on the overall REIT market ....
Wouldn't surprise me if "NovaStar" becomes a 'Black Hole' soon.
.
Edited
Beach Fanatic
Yikes, is right!
NovaStar has/had(?) REIT status, and paid out a whopping 30% dividend. With their anouncement last night, they stated that they would have virtually no "taxable income" through 2011 ... NO taxable income equals NO dividend.
I'm surpized that the stock price is only down 30%ish this morning. People own this stock for the dividend, and that just went to zero ... for the next five years!
I wonder what kind of trickle down affect this will have on the overall REIT market ....
Just FYI--Taxable income does not equate to cash flows. So, no taxable income does not necessarily equate to no dividend. You can have no taxable income due to high deductible expenses such as depreciation that still leaves you with plenty of cash flow available to pay a dividend. On the other hand, you can have plenty of taxable income but no cash available to pay a dividend (if you had significant capital expenditures, for instance).
SoWal Insider
From theStreet.com:
"NovaStar is also considering whether it should retain the company's real estate investment trust status, it says. As a REIT, NovaStar is required to pay 90% of its taxable income as dividends to shareholders. NovaStar says it expects to "recognize little if any taxable income" through 2011. "
So....90% of 0 = 0.
Stock down from $18 - $10 in 2 days....It's a buyer's market!
.
"NovaStar is also considering whether it should retain the company's real estate investment trust status, it says. As a REIT, NovaStar is required to pay 90% of its taxable income as dividends to shareholders. NovaStar says it expects to "recognize little if any taxable income" through 2011. "
So....90% of 0 = 0.
Stock down from $18 - $10 in 2 days....It's a buyer's market!
.
Edited
Beach Fanatic
From theStreet.com:
" NovaStar is required to pay 90% of its taxable income as dividends to shareholders. NovaStar says it expects to "recognize little if any taxable income" through 2011. "
So....90% of 0 = 0.
Stock down from $18 - $10 in 2 days....It's a buyer's market!
.
It says they are REQUIRED to pay 90% of taxable income as a dividend. It does not say that they cannot pay a dividend if they have no taxable income, but they do have positive cash flows.
I'm not saying they will pay a dividend, just that $0 taxable income does not mean that there is no cash flow available to pay a dividend.
Beach Fanatic
Just FYI--Taxable income does not equate to cash flows. So, no taxable income does not necessarily equate to no dividend. You can have no taxable income due to high deductible expenses such as depreciation that still leaves you with plenty of cash flow available to pay a dividend. On the other hand, you can have plenty of taxable income but no cash available to pay a dividend (if you had significant capital expenditures, for instance).
In fact, in looking at Novastars financial statements from 2005, they paid $202 million in dividends even though it appears that they had a taxable loss (as indicated by the $10 million tax refund they received). I am not saying Nova is healthy or a good stock buy. Simply stating that taxable income and ability to pay dividends do not necessarily equate.
SoWal Insider
It says they are REQUIRED to pay 90% of taxable income as a dividend. It does not say that they cannot pay a dividend if they have no taxable income, but they do have positive cash flows.
I'm not saying they will pay a dividend, just that $0 taxable income does not mean that there is no cash flow available to pay a dividend.
In order to qualify as a Real Estate Investment Trust, the entity is required to distribute at least 90% of its taxable income to shareholders--by passing the money along, the REIT does not have to pay corporate federal or state income tax...the lucky recipients of the dividend do that heavy lifting (unless the shareholders hold them in tax-deferred retirement accounts).
If the REIT receives no taxable income, they can always borrow money or sell stock to get cash to make dividend payments, but the total dividend payout cannot exceed retained earnings....additionally, dividend payouts can also be influenced by debt contract restrictions (i.e., lenders will say, Lookie here, we'll lend you $50m to buy that Tattoo Parlor in SoWal, but we don't want you to fork over any of this money to pay dividends to your shareholders....Capisce??)
From what I've read, NovaStar has a pretty decent pile of cash, but how much of this money will be needed to buy back bad loans still remains to be seen. Since the stock price and the yield are inversely related, as the stock price continues to fall, the yield of course will rise--and the high yield will surely attract the devil-may-care speculators like moths to the flame. Another interesting story to watch and learn.
.
Edited
Beach FanaticAuthor
CNBC Faber Report video:
http://www.cnbc.com/id/15840232?video=186844242
"The market in which subprime mortgages are bought and sold is in collapse with spreads having exploded by 300 basis points over the last few days."
http://www.cnbc.com/id/15840232?video=186844242
"The market in which subprime mortgages are bought and sold is in collapse with spreads having exploded by 300 basis points over the last few days."
Beach FanaticAuthor
CNBC is becoming the "all-'subprime disaster' all-the-time" network.
The Faber report again today was on the subprime meltdown impact.
"This is a market in true meltdown."
"The increase in spreads for BBB- has blown out this week. Another 94 basis pts. has been added to that spread this morning alone."
See the video here:
http://www.cnbc.com/id/15840232?video=187495599
The Faber report again today was on the subprime meltdown impact.
"This is a market in true meltdown."
"The increase in spreads for BBB- has blown out this week. Another 94 basis pts. has been added to that spread this morning alone."
See the video here:
http://www.cnbc.com/id/15840232?video=187495599
Edited
SoWal Insider
Underwriting guidlines are tightening more than Dick Cheney's belt. The subprime world is changing quickly.
Edited
Beach Fanatic
Underwriting guidlines are tightening more than Dick Cheney's belt. The subprime world is changing quickly.
I hate that.
Beach FanaticAuthor
Freddie Mac finally jumps onboard the loan standard tightening train ...
(Implode O Meter update: 27)
http://www.marketwatch.com/news/sto...x?guid={3F839423-9407-4ED0-9351-4999979A647C}
Freddie Mac toughens subprime standards
By Greg Morcroft, MarketWatch
Last Update: 9:32 AM ET Feb 27, 2007
NEW YORK (MarketWatch) -- Government-sponsored mortgage marketer Freddie Mac is the latest company to weigh in on the growing concern over lending to unqualified homebuyers, saying Tuesday it's tightening its standards for buying mortgages held by such borrowers.
Freddie Mac said it would start enforcing the new standards after Sept. 1, 2007.
Shockwaves have been rippling through financial markets as more signs emerge that relaxed lending standards during the housing boom of recent years are leading to escalating defaults and rising losses for lenders and owners of securities backed by such loans.
The latest concern was sparked a few weeks ago, when banking giant HSBC Holdings (HBC) said its bad-debt charges will be 20% higher than forecast, primarily reflecting deterioration for U.S. lender Household.
Among smaller lenders, the credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big financial institutions. Several have already filed for bankruptcy.
For its part, Freddie Mac said Tuesday that it would stop buying those mortgages that have "a high likelihood of excessive payment shock and possible foreclosure." Instead, the company plans to buy only subprime adjustable-rate mortgages, and securities backed by such loans, that have been qualified at the fully indexed and fully amortizing rate.
Freddie Mac also said it would limit the use of loans that don't require income verification or other documentation, and will recommend that lenders collect adequate escrow for taxes and insurance payments.
Moreover, the company said it's developing new fixed-rate and hybrid adjustable-rate mortgages with the aim of giving lenders "more choices to offer subprime borrowers."
The firm said its new requirements cover mortgages known as 2/28 and 3/27 hybrid ARMs, which currently make up about three-quarters of the subprime market.
Specifically, Freddie Mac said it will require that borrowers applying for these products be underwritten at the fully indexed and amortizing rate, as opposed to the initial "teaser" rate -- often several percentage points below the actual rate for most of the life of the loan.
The company also will limit use of low-documentation loans, so-called "no income verification" products in combination with the 2/28 and 3/27 hybrid arms.
In addition, the company won't purchase "no income, no asset" documentation loans and will limit so-called "stated income, stated assets" products to borrowers whose incomes derive from hard-to-verify sources, such as self-employed persons and those who participate in the cash economy, the firm said in a press release.
"There will be a reasonableness standard for stated incomes," Freddie Mac concluded.
Shares of Freddie Mac ended Monday's trading at $64.93, off 7 cents.
Separately, Freddie's sister company Fannie Mae, said Tuesday it will delay filing its annual report for 2006. In a regulatory filing, the company also said it risks being de-listed from the New York Stock Exchange if it doesn't turn in its 2005 financials report by Dec. 31 and its 2006 report by Feb. 29, 2008.
Greg Morcroft is MarketWatch's financial editor in New York.
(Implode O Meter update: 27)
http://www.marketwatch.com/news/sto...x?guid={3F839423-9407-4ED0-9351-4999979A647C}
Freddie Mac toughens subprime standards
By Greg Morcroft, MarketWatch
Last Update: 9:32 AM ET Feb 27, 2007
NEW YORK (MarketWatch) -- Government-sponsored mortgage marketer Freddie Mac is the latest company to weigh in on the growing concern over lending to unqualified homebuyers, saying Tuesday it's tightening its standards for buying mortgages held by such borrowers.
Freddie Mac said it would start enforcing the new standards after Sept. 1, 2007.
Shockwaves have been rippling through financial markets as more signs emerge that relaxed lending standards during the housing boom of recent years are leading to escalating defaults and rising losses for lenders and owners of securities backed by such loans.
The latest concern was sparked a few weeks ago, when banking giant HSBC Holdings (HBC) said its bad-debt charges will be 20% higher than forecast, primarily reflecting deterioration for U.S. lender Household.
Among smaller lenders, the credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big financial institutions. Several have already filed for bankruptcy.
For its part, Freddie Mac said Tuesday that it would stop buying those mortgages that have "a high likelihood of excessive payment shock and possible foreclosure." Instead, the company plans to buy only subprime adjustable-rate mortgages, and securities backed by such loans, that have been qualified at the fully indexed and fully amortizing rate.
Freddie Mac also said it would limit the use of loans that don't require income verification or other documentation, and will recommend that lenders collect adequate escrow for taxes and insurance payments.
Moreover, the company said it's developing new fixed-rate and hybrid adjustable-rate mortgages with the aim of giving lenders "more choices to offer subprime borrowers."
The firm said its new requirements cover mortgages known as 2/28 and 3/27 hybrid ARMs, which currently make up about three-quarters of the subprime market.
Specifically, Freddie Mac said it will require that borrowers applying for these products be underwritten at the fully indexed and amortizing rate, as opposed to the initial "teaser" rate -- often several percentage points below the actual rate for most of the life of the loan.
The company also will limit use of low-documentation loans, so-called "no income verification" products in combination with the 2/28 and 3/27 hybrid arms.
In addition, the company won't purchase "no income, no asset" documentation loans and will limit so-called "stated income, stated assets" products to borrowers whose incomes derive from hard-to-verify sources, such as self-employed persons and those who participate in the cash economy, the firm said in a press release.
"There will be a reasonableness standard for stated incomes," Freddie Mac concluded.
Shares of Freddie Mac ended Monday's trading at $64.93, off 7 cents.
Separately, Freddie's sister company Fannie Mae, said Tuesday it will delay filing its annual report for 2006. In a regulatory filing, the company also said it risks being de-listed from the New York Stock Exchange if it doesn't turn in its 2005 financials report by Dec. 31 and its 2006 report by Feb. 29, 2008.
Greg Morcroft is MarketWatch's financial editor in New York.
Edited
Beach FanaticAuthor
Friday was a big day for the Subprime lenders ...
Fremont (5th largest subprime lender) recieved a cease-and-desist order from the FDIC and the company decided to "quit sub-prime lending entirely."
New Century (3rd largest subprime lender) disclosed Friday that it is under criminal investigation on how it accounted for losses when it was forced to buy back soured loans last year, and whether its executives profited by selling stock while misleading other shareholders. Nationwide layoffs were announced on Friday.
Accredited Home (13th largest subprime lender) announced Friday that it would be delaying in 10k filing (usually not a good sign).
Federal regulators on Friday proposed stricter guidelines for government-insured banks and thrifts that make subprime loans, to ensure that they go only to people who can afford them for the long haul (nothing like closing the barn door after the cows got out).
Mortgage Lender Implode-O-Meter is now up to 30.
See the story here:
http://www.latimes.com/business/la-fi-loans3mar03,1,4146026.story?coll=la-headlines-business
Fremont (5th largest subprime lender) recieved a cease-and-desist order from the FDIC and the company decided to "quit sub-prime lending entirely."
New Century (3rd largest subprime lender) disclosed Friday that it is under criminal investigation on how it accounted for losses when it was forced to buy back soured loans last year, and whether its executives profited by selling stock while misleading other shareholders. Nationwide layoffs were announced on Friday.
Accredited Home (13th largest subprime lender) announced Friday that it would be delaying in 10k filing (usually not a good sign).
Federal regulators on Friday proposed stricter guidelines for government-insured banks and thrifts that make subprime loans, to ensure that they go only to people who can afford them for the long haul (nothing like closing the barn door after the cows got out).
Mortgage Lender Implode-O-Meter is now up to 30.
See the story here:
http://www.latimes.com/business/la-fi-loans3mar03,1,4146026.story?coll=la-headlines-business
Beach FanaticAuthor
This is the time to be shopping on Wall st. for opportunity being created by the sub-prime sell off created by HSBC's revolation. The weak shall perish, the strong propsper. I have owned Citicorp for 4 years. If it goes below 50 I will add. Subprime is negligible to them looking at the big picture. I bought WAMU today at 43.20....I will add to it as it goes lower( 5% yield and a strategic acquisition target for the major banks as a kicker).
Wall ST. always over-reacts and throws the baby out with the bath water. Again, this is not new news about sub prime lenders. It has been discussed widely on this board as well as the media in general. Use this to buy great companies ( Wells Fargo, Citicorp, JP Morgan, Bank of America ) in case they sell off appreciably because investors panic and sell the blue chips along with the crap !!
Hey Goofer44 --
Just curious if your view has changed at all since you wrote this on 2/09 ...
Are you "backing up the truck" or "bailing water from the boat?"
SoWal Insider
Funny, I got yet another flyer for Brokers on Friday in the mail, advertising all the funky loans they can do with a bright red intro:
The Subprime market is changing, but we're still going strong"
I don't do these loans, but I read the list of "niches" and couldn't believe they were still offering such high LTV on investment properties with low credit scores and lates on mortgages.
Then I heard the news. :funn:
The Subprime market is changing, but we're still going strong"
I don't do these loans, but I read the list of "niches" and
couldn't believe they were still offering such high LTV on investment properties with low credit scores and lates on mortgages. Then I heard the news. :funn:
Edited
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