The Mortgage Lender Implode-O-Meter

[Mango]

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:

I suspect these "strip mall lenders" are still blissfully unaware of the rapidly dwindling number of organizations and speculators willing to buy their garbage. They'll get the picture when they show up for work one morning to find their office supplies in a box on the curb and that the strip mall manager changed the locks on the door.


.

I forgot and didn't mention that it was Fremont Investment and Loan that I got the flyer from. That is the division of Fremont Bank. They were huge. They started subprime lending in California about 15 years ago. I recall them having difficulty geting licensed in New York, because the FDIC wanted them to open Banking branches here, but eventually they did get a license from the Banking Dept.

 

[goofer]

http://online.barrons.com/article/SB117288185598325465.html?mod=9_0002_b_this_weeks_magazine_home


Interesting cover story in this week's Barrons.

 

[SHELLY]

I forgot and didn't mention that it was Fremont Investment and Loan that I got the flyer from. That is the division of Fremont Bank. They were huge. They started subprime lending in California about 15 years ago. I recall them having difficulty geting licensed in New York, because the FDIC wanted them to open Banking branches here, but eventually they did get a license from the Banking Dept.

Fremont's Tampa staffers are in jeopardy of losing their jobs.
By SCOTT BARANCIK
Published March 6, 2007

As the stocks of subprime mortgage lenders melted down Monday on Wall Street, one struggling bank put several hundred of its Tampa employees on ice.

Fremont Investment & Loan, the country's eighth-biggest subprime lender, told most of its Tampa staff to stay home Monday on paid leave. The move followed news that Fremont General Corp., its California-based parent company, had decided to quit lending money to home buyers who have bad credit and to try to sell that business line. Tampa staff were told to expect an update on their status Wednesday. Their future will depend in part on whether the residential mortgage business is sold, and to whom.

"As far as how individual offices will be affected by this, it's really too early to say," said Dan Hilley, a company spokesman.

Fremont's stock, which began the year at $16.21 per share, dropped 32 percent Monday to close at $5.89. It had plenty of company. New Century Financial Corp., ranked No. 2 on National Mortgage News' list of the largest subprime mortgage lenders, saw its stock fall 69 percent to $4.56 amid fears it might file for bankruptcy protection. Higher-than-expected default rates are causing most of the hand-wringing.

 

[Mango]

I am still leery of buying these stocks yet. IMO we still haven't seen bottom, and I am not a day trader, but here's today's news..

BLOOMBERG:

Fremont, New Century Advance as Report Shows More Refinancing

By Rick Green
March 7 (Bloomberg) -- Fremont General Corp. and New Century Financial Corp. shares rose as mortgage-lending stocks rebounded for a second day, buoyed by a report showing an increase in home- loan refinancing and rising prospects for takeovers.
The Mortgage Bankers Association said loan applications rose last week to the highest level in almost three months, paced by a 15 percent surge in refinancings. The perceived risk of owning low-rated subprime mortgage bonds held steady after declining for four consecutive days.
Fremont, based in Santa Monica, California, told employees on a conference call that five or six prospective buyers are in talks to buy its residential mortgage business. The company's shares surged $1.83, or 27 percent, to $8.60 in 1:07 p.m. composite trading on the New York Stock Exchange. New Century gained 44 cents, or 8.8 percent. NovaStar Financial Inc. added 13 percent. Countrywide Financial Corp., the largest U.S. mortgage lender, rose 0.7 percent.
``The market has been chaotic, but we think it has been overdone,'' said David Hendler, an analyst at CreditSights Inc. in New York. ``People kind of sell and ask questions later.''
The shares of home lenders to the riskiest borrowers, led by New Century, plummeted on March 5 as concerns mounted that rising default rates would push them into bankruptcy. More than two dozen mortgage companies have gone out of business, ceased operations or sought buyers since the start of 2006.
New Century shares remain about 60 percent below their March 2 close and almost 90 percent off their 52-week high last May.
Refinancing Index
Subprime borrowers, typically people with poor credit or heavy debt loads, pay 2 to 3 percentage points more for a mortgage than less-risky customers. Many such loans are made at adjustable rates, leaving them prone to default if borrowing costs rise or lenders tighten standards.
The Mortgage Bankers Association's index of refinancing applications jumped 15 percent last week. It's now up 38 percent from a year earlier and has risen in five of the past six weeks. Total loan applications, which include those for new mortgages, rose 7.3 percent, according to the Washington-based trade group.
``We'll see more refinancing because of problem loans,'' David Lereah, chief economist for the National Association of Realtors, said in an interview yesterday. ``Refinancing may go up artificially.''
Subprime lenders are backed by financing from larger banks and financial institutions. Some of those stocks are smart buys now because the concerns that they'll be hurt by subprime defaults are overblown, Fox-Pitt, Kelton analysts led by David Trone said in a report today. They recommended shares of securities firms including Morgan Stanley, Merrill Lynch & Co. and Bear Stearns Cos., all based in New York.
`Fully Punished'
Trone's team raised U.S. investment banks and brokers to ``overweight'' from ``market-weight,'' and elevated Morgan Stanley, Merrill and Bear Stearns to ``outperform'' from ``in- line.''.
``The market has already fully punished the bulge names for their involvement in subprime,'' the Fox-Pitt analysts wrote.
New Century, based in Irvine, California, disclosed March 2 that it faces a criminal probe and may need waivers from its own lenders to stay in business. The same day, Fremont said it would stop making loans to people who can't pay and announced plans to get out of the subprime business.
HSBC Holdings Plc, the U.K.'s biggest bank, was the No. 1 subprime lender in the U.S. last year. New Century ranked second, according to Inside B&C Lending, a trade journal.
Shares of Impac Mortgage Holdings Inc., which specializes in less-risky mortgages known as ``Alt-A'' loans, added 11 percent today. IndyMac Bancorp, the second-largest independent U.S. mortgage lender after Countrywide, gained 6.2 percent. Accredited Home Lenders Holding Co. fell 4.3 percent.

 

[SHELLY]

New Century, based in Irvine, California, disclosed March 2 that it faces a criminal probe and may need waivers from its own lenders to stay in business. The same day, Fremont said it would stop making loans to people who can't pay and announced plans to get out of the subprime business.

So let me get this straight....going forward they're only going to make loans to people who can pay???

What kind of a zany business plan is that for a mortgage company?
<sarcasm off>.

 

[Mango]

So let me get this straight....going forward they're only going to make loans to people who can pay???

What kind of a zany business plan is that for a mortgage company?
<sarcasm off>.

I know. I was soooo tempted to e-mail the writer of the article and ask if that was a quote directly from Fremont. :funn:

 

[bdc63]

New Century (the 3rd largest US subprime lender) bites the dust!

Bankruptcy rumors on all the blogs (even CNBC is talking about this one). The stock is down to $4 (was in the $40's a few weeks back).

Headline:
New Century Halts New Loans as Lenders Cut Off Credit
http://www.bloomberg.com/apps/news?pid=email_en&refer=home&sid=aItk2fsczSGI

"The refusal by several lenders to let New Century tap other credit lines has prevented the mortgage company from delivering all the loans it promised to customers, said a company statement. While New Century hopes to resume accepting applications as soon as possible, the statement said there's no assurance this will happen. "


Impode o meter update: 34

 

[SHELLY]

New Century (the 3rd largest US subprime lender) bites the dust!

And this excerpt from MarketWatch.....

Lenders specializing in such loans, like New Century, rely in part on big banks known as warehouse lenders to finance their operations. These backers require that subprime lenders meet certain minimum financial targets; otherwise, they have the right to end the business relationship.
On Friday, New Century said it had breached one of those requirements, or covenants, and also disclosed that it's the subject of a federal criminal investigation.

"Once you get hit with one of these crunches, warehouse lenders don't want to lend to you, so you're really done," said Joseph Mason, associate professor of finance at Drexel University's LeBow College of Business and a visiting scholar at the Federal Deposit Insurance Corp.

New Century said late Thursday that one of its financial backers forced the company to repurchase some loans. It didn't identify the lender.

The company said it's talking with lenders and other third parties about getting more access to financing, but warned that its efforts might fail.

"These firms that rely on funding mechanisms like securitizations are like sharks -- if they stop moving they die," Mason added.

(A hat-tip to Mason's simile.)

 

[sberry123]

And this excerpt from MarketWatch.....

Lenders specializing in such loans, like New Century, rely in part on big banks known as warehouse lenders to finance their operations. These backers require that subprime lenders meet certain minimum financial targets; otherwise, they have the right to end the business relationship.
On Friday, New Century said it had breached one of those requirements, or covenants, and also disclosed that it's the subject of a federal criminal investigation.

"Once you get hit with one of these crunches, warehouse lenders don't want to lend to you, so you're really done," said Joseph Mason, associate professor of finance at Drexel University's LeBow College of Business and a visiting scholar at the Federal Deposit Insurance Corp.

New Century said late Thursday that one of its financial backers forced the company to repurchase some loans. It didn't identify the lender.

The company said it's talking with lenders and other third parties about getting more access to financing, but warned that its efforts might fail.

"These firms that rely on funding mechanisms like securitizations are like sharks -- if they stop moving they die," Mason added.

(A hat-tip to Mason's simile.)

Here is another one, Countrywide is pulling back on 100% financing!

Countrywide stops no-money-down lending
The mortgage lender tells brokers to end offering the option of no down payment as delinquencies increase.
March 9 2007: 5:28 PM EST


NEW YORK (Reuters) -- Countrywide Financial Corp., the largest U.S. mortgage lender, Friday told its brokers to stop offering borrowers the option of a no-money-down home loan, according to a document obtained by Reuters.

Loans financing 100 percent of a home's value are among those leading to a sharp rise in delinquencies at U.S. mortgage lenders. Such mortgages below "prime" quality have resulted in the closure, sale or losses at more than two dozen mortgage lenders, analysts said.

"Please get in any deals over 95 LTV [loan-to-value] today!" Countrywide said late Friday in an urgent e-mail. "Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12."

Countrywide (Charts), along with lenders ranging from HSBC Holdings Plc (Charts), Europe's biggest bank, to NovaStar Financial Inc. (Charts) to New Century Financial Corp. (Charts) have reported rising delinquencies lately.

 

[bdc63]

Aaron Krowne, the guy that runs the impode-o-meter website, has a 30 minute podcast interview on Wall Street Examiner Radio with Lee Adler (March 11),

http://podcast.streetiq.com/streetiq?ChannelID=3135&GUID=1382931&Page=MediaViewer

It's definately worth listening to when you have a half hour to spare ... a great counterbalance to the "mainstream financial informercial media", as Lee Adler calls them.