Post by jeffolie on Mar 5, 2007 19:19:07 GMT -6
'Panic' takes hold as subprime lenders slump
MarketWatch
Last Update: 4:46 PM ET Mar 5, 2007
SAN FRANCISCO (MarketWatch) -- Shares of subprime lenders including NovaStar Financial, Accredited Home Lenders and Fremont General dropped more than 25% on Monday as investors dumped holdings in an industry rocked by tighter regulation and bad debts.
NovaStar (NFI : novastar finl inc com
News , chart , profile , more
Last: 4.28-2.96-40.88%
NFI4.28, -2.96, -40.9%) slumped 41% to $4.28, Fremont (FMT : Fremont General Corporation
Last: 5.89-2.82-32.38%
7:44pm 03/05/2007
FMT5.89, -2.82, -32.4%) lost 32% to $5.89 and Accredited (LEND : accredited home lendrs hldg com
News , chart , profile , more
Last: 16.06-5.64-25.99%
8:00pm 03/05/2007
LEND16.06, -5.64, -26.0%) declined 26% to $16.06.
'When bad news is affecting one or two there seems to be collateral damage.'
— Rich Eckert, Roth Capital Partners
"There's a lot of panic selling today," Rich Eckert, senior research analyst at Roth Capital Partners, said. "People are deciding they don't want to be exposed to this sector at all."
Subprime mortgages are offered to homebuyers who don't meet the strictest lending standards. Companies that specialize in these loans have suffered as housing prices stopped rising and interest rates climbed from record lows. See full story.
In the most acute example on Monday, shares of New Century (NEW : new century financial corp m com
News , chart , profile , more
Last: 4.56-10.09-68.87%
7:55pm 03/05/2007
NEW4.56, -10.09, -68.9%) lost more than two-thirds of their value to close at $4.56. The second-largest subprime lender in the U.S. said late Friday that it's facing a federal criminal probe and has breached a covenant with some major lenders that provide important financial backing. See full story.
Fremont said that it's getting out of the business after the Federal Deposit Insurance Corp., which helps regulate lenders, ordered it to stop selling some subprime mortgages. See full story.
As interest rates rose in 2005 and 2006, subprime lenders relaxed their underwriting standards to keep sales volumes up. Now more borrowers are beginning to fall behind on payments. More than 12% of subprime mortgage loans were delinquent during the third quarter of 2006, according to Morgan Stanley research. That's up from less than 8% at the end of 2003.
"These stocks tend to trade as a group. When bad news is affecting one or two there seems to be collateral damage," Eckert said.
Accredited Home Lenders has been among the most conservative subprime lenders and will likely survive the crisis, but investors are ignoring that right now, the analyst added.
"Accredited and others face some of the same issues that are negatively impacting New Century, but they're not in jeopardy of having their warehouse lines pulled, that I know of," Eckert said.
He said Accredited Home Lenders's shares are worth $30, but are trading well below that and probably won't recover for a long time.
"It might be better for investors to get out now and then get back in later, when the industry is exhibiting some signs of recovery," Eckert concluded.
NovaStar securitization
Most subprime lenders sell the loans they originate to investment banks, which then package them up and sell them on again to other investors as mortgage-backed securities.
But as more problems have emerged in the subprime sector, it's becoming harder for originators to sell their loans into secondary markets.
NovaStar sold a package of its loans in a $1.9 billion securitization in late February. However, the company retained the lowest-rated portion of the deal.
"They were able to sell about 95% of the deal, which means that they kept about 5%," Roth Capital's Eckert said. "They stand directly exposed to loss right now, but if they'd managed to sell the whole deal, the investors would be the ones exposed."
In the end, it cost NovaStar more to originate the loans than the company received from its securitization, the analyst noted.
www.marketwatch.com/news/story/subprime-panic-takes-hold-investors/story.aspx?guid=%7B75E1EE31%2D0F63%2D422D%2D8715%2D2CB945DFF410%7D
MarketWatch
Last Update: 4:46 PM ET Mar 5, 2007
SAN FRANCISCO (MarketWatch) -- Shares of subprime lenders including NovaStar Financial, Accredited Home Lenders and Fremont General dropped more than 25% on Monday as investors dumped holdings in an industry rocked by tighter regulation and bad debts.
NovaStar (NFI : novastar finl inc com
News , chart , profile , more
Last: 4.28-2.96-40.88%
NFI4.28, -2.96, -40.9%) slumped 41% to $4.28, Fremont (FMT : Fremont General Corporation
Last: 5.89-2.82-32.38%
7:44pm 03/05/2007
FMT5.89, -2.82, -32.4%) lost 32% to $5.89 and Accredited (LEND : accredited home lendrs hldg com
News , chart , profile , more
Last: 16.06-5.64-25.99%
8:00pm 03/05/2007
LEND16.06, -5.64, -26.0%) declined 26% to $16.06.
'When bad news is affecting one or two there seems to be collateral damage.'
— Rich Eckert, Roth Capital Partners
"There's a lot of panic selling today," Rich Eckert, senior research analyst at Roth Capital Partners, said. "People are deciding they don't want to be exposed to this sector at all."
Subprime mortgages are offered to homebuyers who don't meet the strictest lending standards. Companies that specialize in these loans have suffered as housing prices stopped rising and interest rates climbed from record lows. See full story.
In the most acute example on Monday, shares of New Century (NEW : new century financial corp m com
News , chart , profile , more
Last: 4.56-10.09-68.87%
7:55pm 03/05/2007
NEW4.56, -10.09, -68.9%) lost more than two-thirds of their value to close at $4.56. The second-largest subprime lender in the U.S. said late Friday that it's facing a federal criminal probe and has breached a covenant with some major lenders that provide important financial backing. See full story.
Fremont said that it's getting out of the business after the Federal Deposit Insurance Corp., which helps regulate lenders, ordered it to stop selling some subprime mortgages. See full story.
As interest rates rose in 2005 and 2006, subprime lenders relaxed their underwriting standards to keep sales volumes up. Now more borrowers are beginning to fall behind on payments. More than 12% of subprime mortgage loans were delinquent during the third quarter of 2006, according to Morgan Stanley research. That's up from less than 8% at the end of 2003.
"These stocks tend to trade as a group. When bad news is affecting one or two there seems to be collateral damage," Eckert said.
Accredited Home Lenders has been among the most conservative subprime lenders and will likely survive the crisis, but investors are ignoring that right now, the analyst added.
"Accredited and others face some of the same issues that are negatively impacting New Century, but they're not in jeopardy of having their warehouse lines pulled, that I know of," Eckert said.
He said Accredited Home Lenders's shares are worth $30, but are trading well below that and probably won't recover for a long time.
"It might be better for investors to get out now and then get back in later, when the industry is exhibiting some signs of recovery," Eckert concluded.
NovaStar securitization
Most subprime lenders sell the loans they originate to investment banks, which then package them up and sell them on again to other investors as mortgage-backed securities.
But as more problems have emerged in the subprime sector, it's becoming harder for originators to sell their loans into secondary markets.
NovaStar sold a package of its loans in a $1.9 billion securitization in late February. However, the company retained the lowest-rated portion of the deal.
"They were able to sell about 95% of the deal, which means that they kept about 5%," Roth Capital's Eckert said. "They stand directly exposed to loss right now, but if they'd managed to sell the whole deal, the investors would be the ones exposed."
In the end, it cost NovaStar more to originate the loans than the company received from its securitization, the analyst noted.
www.marketwatch.com/news/story/subprime-panic-takes-hold-investors/story.aspx?guid=%7B75E1EE31%2D0F63%2D422D%2D8715%2D2CB945DFF410%7D