Housing Bubble Bursting?

[Randolph Kinney]

Mortgage debt hit by HSBC sub-prime default news

http://www.marketwatch.com/news/story/mortgage-backed-securities-sell-off-after/story.aspx?guid=%7B9428DE45%2D66AB%2D49CB%2DBDB5%2DA5FC63F64724%7D

Mortgage debt hit by HSBC sub-prime default news

By Leslie Wines, MarketWatch
Last Update: 3:06 PM ET Feb 8, 2007


NEW YORK (MarketWatch) -- News from HSBC Holdings and New Century Financial of an increase in sub-prime mortgage defaults sparked heavy selling of some types of mortgage-linked securities.

There were also reports of heavy selling of home-equity collateralized debt obligations, traders said. These are structured finance products, similar to a mutual fund, in which owners buy a stake in a pool of mortgages or home-equity loan products.

Rod Dubitsky, a fixed-income analyst at Credit Suisse, wrote in a research note that his agency is reviewing for possible downgrades 24 asset-backed securities that were created from sub-prime home-equity deals in 2006, a vintage year for such deals.

Late Wednesday New Century Financial Corp. warned that its total loan production for 2007 will fall short of expectations. The company said it now expects loan production to be 20% below 2006 levels. Previously, New Century had forecast that it would be flat for 2007.

Kathleen Shanley, a GimmeCredit analyst, noted that HSBC's problems are much worse than it expected a few months ago, but said that the bank is large and diverse which gives it "a strong base of earnings to support provisioning."

The developments reignited a debate as to the extent to which deteriorating conditions in the housing market are spilling over into the financial services industry and the broader economy.

New York University economist Nouriel Roubini in his blog said the rate of sub-prime defaults and foreclosures is rapidly increasing.

"The number of sub-prime lenders going belly up increases every week and even those big ones that have not closed shop are showing increasing signs of losses, retrenchment and/or willingness to sell their operations," he wrote.

"The political storm over 'predatory lending' is gaining strength," according to Roubini. "The risk of serious litigation and class action lawsuits over predatory lending is increasing."

 

[Randolph Kinney]

New Century plunges on loan production

New Century plunges on loan production

By Tomi Kilgore & Steve Gelsi, MarketWatch
Last Update: 4:30 PM ET Feb 8, 2007


NEW YORK (MarketWatch) -- Shares of New Century Financial tumbled 36% Thursday, hitting their lowest in four years as investors punished the mortgage services provider over its warning that loan production for 2007 would fall short of expectations.

Brokers lower their rating on the stock which fell below $20 for the first time since early l 2003.

The stock ended the session at $19.24, down $10.92 on volume of 25.1 million shares.

Last month's total mortgage loan production was $4.2 billion, up 5% from January 2006, according to the company. Non-prime loan production dropped 2.9%, to $3.4 billion from $3.5 billion.

However, the level of early-payment defaults and loan repurchases have led to tighter underwriting guidelines, according to New Century Financial.

The company also said it would restate results for the quarters ended March 31 through Sept. 30 to correct accounting errors related to loan-repurchase losses.

Jefferies & Co. on Thursday lowered its rating on New Century Financial to hold on book-value concerns.

Merrill Lynch downgraded the stock to a sell.

"New Century's accounting issues and deteriorating fundamentals at its lending operation could put it at a steep downward slope, in our view, and we are more concerned that liquidity issues and adverse market reactions could undermine its business model and financial stability even further," Merrill Lynch said.

 

[Randolph Kinney]

Why ARM Debt Is Becoming Unlikely To Refinance

http://online.wsj.com/public/article/SB117090141629001793-___XGY0zWVLEeSPSkwkgEdre72U_20070215.html?mod=mktw

Mortgage Refinancing Gets Tougher

[FONT=Times New Roman,Times,Serif]As Adjustable Loans Reset at Higher Rates,
Homeowners Find Themselves Stuck
Due to Prepayment Penalties, Tighter Credit

[/FONT] [FONT=times new roman,times,serif][FONT=times new roman,times,serif]By RUTH SIMON
February 8, 2007; Page D1[/FONT]
[/FONT]
With rates on many homeowners' adjustable-rate mortgages rising, some who would like to refinance into a new loan are finding they can't.

In some cases, that is because their loan carries a prepayment penalty, which would force them to come up with thousands of dollars if they refinance in the first few years. Such penalties are common with so-called option adjustable-rate mortgages, which typically carry a low teaser rate that rises sharply after an introductory period.

Other borrowers are getting caught short by a changing housing market -- one in which home prices have flattened and lenders are beginning to tighten their standards after a long period of making mortgages easier and easier to get. The challenges are greatest for homeowners whose credit has declined since they took out their last loan and for those who have little if any equity. Some of these borrowers are still able to refinance but are finding it more costly than they expected.

These new challenges come at a time when many borrowers who took out adjustable-rate mortgages are facing higher payments. There are about $1.1 trillion to $1.5 trillion in ARMs that will face rate increases this year, according to the Mortgage Bankers Association. The MBA expects borrowers to refinance as much as $700 billion of those mortgages.

"The decrease in property values, combined with prepayment penalties, is making it very challenging for people to get out of these loans," says Ed Shanks, an executive vice president with U.S. Bank Home Mortgage, a unit of U.S. Bancorp. U.S. Bank is seeing more loans fall through, particularly in markets such as Arizona, California, Colorado and Ohio, where home values have softened. It could be "the tip of the iceberg," Mr. Shanks says.

Prepayment penalties are most common with option ARMs and loans made to borrowers with scuffed credit. Some 84% of option ARM loans made last year carried a prepayment penalty, according to an analysis by UBS AG that looked at mortgages that were packaged into securities and sold to investors.

Meanwhile, there are signs that some lenders are beginning to tighten their standards. The shift comes after a long period of liberal lending practices that made it easy for borrowers to finance 100% of a home's value or get a mortgage without documenting their income and assets.

In a survey released Monday by the Federal Reserve Board, roughly 15% of domestic banks reported that they had tightened credit standards on residential mortgage loans in the past three months, the highest share since the early 1990s.

 

[moh malekpour]

http://today.reuters.com/news/artic...d=&cap=&sz=13&WTModLoc=BizArt-C1-ArticlePage2
U.S. mortgage carnage bad, but could be worse
As home prices rose, lenders eased standards. No-money-down loans became more common. Adjustable-rate mortgages (ARMs) with low initial rates and loans that let borrowers pay less than interest due each month, became more popular. Debt soared.

"Subprime was a business (where) you take inferior credit, but you'd require superior equity," Angelo Mozilo, chief executive of Countrywide Financial Corp. (CFC.N: Quote, Profile , Research), the largest mortgage lender and No. 4 subprime lender, said on January 30. "That all disappeared in the last couple of years and you get a 100 percent loan with marginal credit and that doesn't work."

Many borrowers will pay the piper. The Mortgage Bankers Association expects up to $800 billion of ARMs to reset in 2007. Among people who owe money on their homes, one in four have ARMs, and one in 11 have subprime ARMs, the group said
LENDERS REACT

Analysts say people will fight not to lose their homes.

"Historically, people don't walk away from their homes unless they lose their jobs, or have medical expenses or family issues, because their home is their biggest asset," said Kathy Shanley, a senior bond analyst at Gimme Credit in Chicago.

Yet lenders cannot count on borrower perseverance to make money.

Many, such as Washington Mutual Inc. (WM.N: Quote, Profile , Research) and New Century, have tightened their lending standards. Others have thrown in the towel in the last six months.

ABM Amro Holding NV (AAH.AS: Quote, Profile , Research), KeyCorp (KEY.N: Quote, Profile , Research) and National City Corp. (NCC.N: Quote, Profile , Research) decided to sell subprime units. Ameriquest Mortgage Co. and H&R Block Inc.'s (HRB.N: Quote, Profile , Research) Option One unit are up for sale. Wachovia Corp. (WB.N: Quote, Profile , Research) last week shut its subprime unit. Sebring Capital Partners LLC closed. Mortgage Lenders Network Inc. and Ownit Mortgage Solutions Inc. filed for bankruptcy protection.

"There's probably 40 or 50 a day throughout the country going down in one form or another," Mozilo said. "I expect that to continue throughout the year."

 

[Hal Mann]

Well, I must confess that I haven't checked this thread in 100 pages or so, but I want to know: Where is Mike Simpson when we need him?

 

[JSmith43]

Well, I must confess that I haven't checked this thread in 100 pages or so, but I want to know: Where is Mike Simpson when we need him?

There is a lack of diversity. Is this thread on the edge of group think?

BTW, Mike got banned. I can only imagine it was really due to the crusader thread which just happened to disappear somewhere between the infamous server crash and restoration from back-up.

Then again, I'm always wondering why it seems that "important stuff" is always airing on AM radio at the precise time I have to pass through a long tunnel.

 

[Allen Bailey]

There is a lack of diversity. Is this thread on the edge of group think?

BTW, Mike got banned. I can only imagine it was really due to the crusader thread which just happened to disappear somewhere between the infamous server crash and restoration from back-up.

I miss good old Mike S., kind of hard to believe that kind of censorship could exist in this day and age on a real estate appraisers forum. So much for the old saying "dare to be different".

 

[Artemis Fowl]

Hope that "new paradigm" is working out for him...

 

[Pamela Crowley (Florida)]

There were numerous posts by that member that violated the forum rules.
The banning was with very good cause and after many, many warnings.
Discussion about it is over.

 

[Pamela Crowley (Florida)]

http://www.hotelcondoresort.com/200...-of-new-century-financial-corp-investors-new/

Roy Jacobs & Associates Files Class Action Lawsuit On Behalf of New Century Financial Corp. Investors

Roy Jacobs & Associates announces that it has filed a class action lawsuit in the United States District Court for the Central District of California on behalf of purchasers of the common stock and other securities of New Century Financial Corp. (“New Century'’ or the “Company'’) who purchased during the period from May 4, 2006 through February 7, 2007, inclusive (the “Class Period'’).

For further information you may call toll free, 1-800-347-1236, or contact counsel by e-mail by writing to jacobs@jacobsclasslaw.com

The complaint alleges that New Century and certain of its officers and directors violated the federal securities laws by making false and misleading statements and omissions concerning the Company’s operations and financial results for the first three quarters of 2006. New Century, a mortgage finance company, makes substantial amounts of residential mortgage loans. It does not hold these loans but sells the loans to banks and investors. The purchasers can require New Century to repurchase loans which become troubled.

During the Class Period defendants knew but failed to reveal that New Century was being forced to buy-back substantially more loans than originally had been expected. Despite knowing of the surge in forced loan repurchases, the defendants failed to properly account for them. In addition, the Company failed to write-down the value of the loans reacquired, even though these troubled loans had materially declined in value.

Then on February 7, 2007 the Company shocked the market by announcing that it was going to restate its financial results for the first three quarters of 2006 because the Company had failed to account for all of the re-purchased loans, and had failed to properly reduce the value of the loans repurchased. The Company was forced to admit that its financial statements could no longer be relied upon.

As a result of this unexpected news, New Century shares dived to a 52-week low, dropping $10.92, a decline of over 36% on volume of 25 million shares.

If you purchased New Century stock or other securities during the Class Period, you may qualify to serve as Lead Plaintiff on behalf of the Class, which consists of all persons and entities who purchased New Century stock or other securities from May 4, 2006 through February 7, 2007. You are not required to have sold your New Century stock or other securities in order to claim damages, or to serve in this role. All motions for appointment as Lead Plaintiff must be filed with the Court by April 10, 2007.

If you wish to discuss this action or have any questions concerning this notice or your rights or interests with respect to this matter, please contact Roy L. Jacobs. Mr. Jacobs will personally speak with you at no cost or obligation. You may also join this action by visiting our website at http://www.jacobsclasslaw.com.

More information on this and other class actions can be found on the Class Action Newsline at http://www.primenewswire.com/ca.

Contact:

Roy Jacobs & Associates
Roy L. Jacobs, Esq.
(800) 347-1236
jacobs@jacobsclasslaw.com
www.jacobsclasslaw.com.

Source: Roy L. Jacobs, Esq.