Monday, March 19, 2007

NovaStar cutting staff

NovaStar is the next mortgage lender to reduce workforce. On Friday, March 16, it was announced that the company is planning some 350 layoffs, or 17% of its staff, in its wholesale loan origination group, including 50 employees at its Kansas City headquarters. Operation centers in California and Ohio will be affected by the cut, too.

The reductions aim to align the company to current market realities and will be implemented gradually, concluding in the second quarter of 2007. NovaStar’s loan servicing organization will not be affected by the reduction.

The lender said it will continue to focus on solid lending guidelines and lower loan origination costs. Shares rose 14.6% to $5.90.

Friday, March 16, 2007

Shares of Countrywide Financial Rise

Shares of mortgage lender Countrywide Financial rose after Merrill Lynch called the company an “attractive buying opportunity”. Stocks were up 3.7% at $35.65, while shares of other mortgage lenders showed gains, too. Shares of Accredited were up 59% at $9.60, those of NovaStar made a 22% jump to $5.11, and Fremont reached $7.38. Goldman Sachs, Lehman and Bear Sterns said they are considering purchasing mortgage portfolios, teams of lenders or even entire subprime lending companies. Are they giving subprime another chance? In fact, this could be a smart move on investors’ part, because they could be acquiring fully-operating facilities along with experienced staff – on the cheap – as lenders face their financial hardships.

On a side note remark, Angelo Mozilo, chairman and CEO of Countrywide Financial, has been selling his company’s shares in bulk lately. On Mar. 12 alone he got rid of 70,000 CFC shares, raising 2.45 million, following the 70,000 shares he sold for $2.62 million on Mar. 8 and the 46,000 shares he dumped for 1.67 million on Mar. 6. Is it just me or does something smell fishy?

Thursday, March 15, 2007

Four states ordered New Century to stop doing business

State regulators from Massachusetts, New Hampshire, New Jersey and New York have sent letters to New Century, asking the lender to stop business operations. The notices said New Century has violated state laws by failing to fund mortgages that closed and by not notifying authorities of its financial crisis. The lender said it is unable to satisfy its subsidiaries’ loan repurchase obligations and expects to receive cease-and-desist notices from other states, too. Regulators also asked New Century not to pay dividends and bonuses to its executives. Shares of New Century, which has already stopped originating new loans, dropped more than 20% to close at 67 cents on the over-the-counter Bulletin Board. What an ugly situation for New Century – and its employees, shareholders, and investors. So what, are they going to wait for all the states to ask them to stop business operations before they admit they’re finally, totally and unequivocably broke?

The mortgage lender also revealed that it has defaulted on a loan agreement with Barclays Bank PLC and is required to buy back $900 million’ worth of mortgage loans. This seems to go on forever – every two or three days New Century announces that yet another of its lenders has asked it to repay its obligations or refused to provide additional financing. They must have truly overstretched themselves.

Wednesday, March 14, 2007

New Century Delisted

Shares of New Century Financial Corp., until recently a leading subprime mortgage lender, were delisted from NYSE after it was announced that federal investigators have issued a subpoena for “certain documents”. Trading of company stock was halted on Monday, while the exchange was trying to evaluate the mortgage lender’s financial standing.

New Century has defaulted on its obligations to most of its lenders, all of which have cut financing in recent weeks and demanded debt repayment. Late in February, the company announced that federal prosecutors were undertaking a criminal probe into its accounting and stock trading practices, after it was disclosed that accounting errors led to underestimating of loan-repurchase risk and inadequate risk management at the company.

After dramatic drops in New Century’s share price and a number of shareholder lawsuits filed against the company, this is the most recent blow that may drive the lender closer to bankruptcy, something analysts have been anticipating for quite a while. New Century stock last traded at $1.66 before the New York Stock Exchange halted trading, down from a 52-week high of more than $50 in May. After all that’s happened in recent months, I don’t understand what hope is left that this lender will NOT file for bankruptcy and why are company officials attempting to do the obviously impossible – save a company with billions of debt that doesn’t have sufficient equity to repay them. Or perhaps they’re just pretending – after all it was announced that several of New Century’s top officials have recently sold most of the company shares they owned and raised hundreds of thousand in the meantime. No, they don’t seem to believe it will last much longer.

New Century also disclosed another “inadvertent” error in its earlier statements, where its obligation to Credit Suisse First Boston was estimated at $900 million instead of $1.4 billion. Looks like they’re so nervous about dealing with their situation at the moment, and so busy negotiating with their investors, that they’re starting to make mistakes. Another one could well prove fatal.

Thursday, March 8, 2007

Mortgage rates drop, applications rise

Mortgage rates kept falling for a third consecutive week and reached levels last recorded in early December, according to a survey by the Mortgage Bankers Association issued Wednesday.

As rates dropped, due to last week’s troubles in the stock market, mortgage applications jumped, marking a 7.3% increase for the week ended March 2. Applications were 16.7% above the levels reached this time a year ago.

The rates on 30-year fixed mortgages averaged 6.04%, 0.12 lower than a week earlier, and lower than last year’s 6.31% rate. Fixed 15-year mortgage rates were down to 5.73%, from 5.84% last week. One-year adjustable-rate mortgages slid to 5.79% from 5.92 a week ago. Refinancing applications increased, as consumers saw the low rates as a perfect opportunity to refinance into a fixed-rate mortgage or to lock in better terms.

More refinancing applications are expected to be filed, as ARMs taken in recent years are poised to adjust in 2007. Housing market activity will be closely monitored in the weeks to come, with the Fed meeting for policy-making on March 20-21. While a rate hike is deemed highly improbable, there is some speculation as to whether the Federal Reserve will cut rates or not.

January results for the housing market

Various reports issued this week show contradicting and in some cases unexpected trends in the housing market in January. First, sales of existing homes rose 3%, the largest month-over-month gain in 2 years, according to the National Association of Realtors (NAR). At the same time, the inventory of unsold homes rose 2.3%, in spite of a drop in new construction reported earlier this month. At the current sales pace, the unsold inventory equals a 6.6 month supply. Existing home sales in January were still 4.3% below the January 2006 levels. On the other hand, sales of new homes dipped 16.6% below December 2006 sales, according to the Department of Housing and Urban Development (HUD). The median sales price dropped 3.1% on year-over-year basis, to $210, 600.

NAR officials said it’s hard to tell whether the real estate market has bottomed out, as large-scale weather events may have affected the January sales numbers. Are they saying anything new? Yes, NAR president Pat Combs said the market “is trending up”, but what is the evidence behind such statements? This could be the bottom, with its mixed trends and contradicting results, but it might as well be an extension of the downward curve. I don’t think anyone knows for sure. We’ll wait until the February results come out.

Wednesday, March 7, 2007

Freddie Mac to cut down on subprime lending

Freddie Mac, one of the biggest buyers of home mortgages in the U.S., announced that, as of September 1st, 2007, it will no longer purchase subprime loans and loans that carry potential risk of payment shock. It will also stop buying loans that require little to no documentation.

Now this I call sound business practice. It was high time someone recommended better standards and a company as big as Freddie Mac can actually influence the market. Since the changes will take effect as far in the future as September, the impact of this news will not be immediate and yet, I guess many lenders who depend on the company will take notice.

Freddie Mac said it is developing new fixed-rate and hybrid adjustable-rate mortgage products to provide more choices for borrowers. An estimated 50% of the mortgage-backed securities currently owned by Freddie Mac won’t comply with the new standards, so are we in for brand-new types of loans? It seems that more exciting news is on the way, but I wonder what portion of those who took out subprime mortgages in the past will qualify for the new products.

The company also recommends that banks and lenders hold money from borrowers in escrow for paying taxes and insurance, a common practice in prime lending that could help improve subprime lending standards.

Fannie Mae, the mortgage giant’s sister-company, said it would wait for guidance from federal regulators before acting, as its exposure to the subprime segment is “low”.

New "Serving Those Who Serve" Initiative

"Serving those who serve” is a special initiative taken up by Countrywide Financial and Rebuilding Together, the nation’s largest volunteer home-repair organization. The aim of the program is to provide home improvements and repairs to injured military personnel returning from the conflicts in Iraq and Afghanistan. Soldiers and veterans who’ve participated in Iraqi Freedom and Enduring Freedom Operations and suffered severe injuries are eligible, as they face life-altering situations at home. The repairs and modifications provided usually include widening doorways and hallways to allow passage by individuals using mobility aids, installing ramps and no step entries, as well as replacing the roof or floors, repairing plumbing, heating and cooling systems, replacing appliances and installing handrails. Such programs make people feel that their service and sacrifice is being appreciated, so it’s nice to learn the #1 mortgage lender is taking part, helping those who really need help. It’s always nice to find out about initiatives that actually assist people in acquiring a house or improving their home, instead of “affordable loans” that cost borrowers dearly in the long run.

Over the weekend, PRNewswire issued a press release covering a current project involving Countrywide and Rebuilding Together, aimed to make improvements and modifications to the home of Sgt. Christopher Edwards, who was injured in Iraq in April 2005. The home is located in Cibolo, Texas, and will require remodeling the bathroom with a zero entry shower, replacement of carpeting with wood flooring, widening doorways and entry ways and other improvements.

Countrywide Financial Corporation is contributing more than $1.2 million to the program, and many of its employees have volunteered to help in the home repair work. Any donations of both money and volunteer work are welcome. Fannie Mae, Home Depot and Honeywell are also listed as sponsors of the program.

More information can be found on the program’s website,