Friday, April 6, 2007

Concerns over the resignation of Fremont’s auditor

Grant Thornton LLP, an accountancy firm hired by Fremont General, resigned earlier this week, sparking concerns about the lender’s bookkeeping practices. Fremont shares dropped 10% to close at $5.78 on Wednesday.

Grant Thornton said Fremont didn’t always provide the information needed for the audit. The lender, on the contrary, claims it always provided needed information and wants the lender to complete the audit, but Grant Thornton is looking to exit the subprime mortgage industry and expand its audit. Grant Thornton recently resigned from auditing another lender, Accredited Home Lenders, but in that case, there were no disagreements about the reason.

It is very unusual for an auditor to publicly disagree with a client about the reasons behind its resignation, and it could well mean that there was something wrong with Fremont’s accounting. Perhaps Fremont, like other lenders, has used some kind of “creative” accounting?

Freddie Mac Sponsors Children’s Fund

Freddie Mac has granted $750,000 to the Children’s Defense Fund (CDF), an organization that supports vulnerable children and their families and helps low- to moderate-income households across the country. The grant will enable CDF to open 130 new assistance sites and file 112,000 tax returns on behalf of families with low or moderate income. The initiative aims to improve the families’ financial conditions and ensure long-term financial independence for households and their children.

CDF has helped more than 114,000 taxpayers file their returns and receive $170,000 in tax refunds and child tax credits since 2002. The Fund depends on foundation and corporate grants and individual donations and pays particular attention to the needs of minority children and children with disabilities. It was founded in 1973 and has never taken government funds. The Freddie Mac Foundation, which provided the financing, has helped improve the well-being of more than 1.7 million children over the past 15 years, preventing child abuse and neglect, finding homes for foster children, and helping children and their families achieve financial independence.

Wednesday, April 4, 2007

Accredited Home Lenders Obtains $500 Million Line Of Credit In An Attempt To Stay Afloat

In efforts to stay afloat in the troubled mortgage market, Accredited Home Lenders is considering various strategic options, including a merger, raising additional capital, or some other “strategic transaction”, according to a statement. The lender has already obtained a $500 million warehouse line of credit from an undisclosed commercial bank. Combined with a renewed borrowing arrangement for $600 million, this means that Accredited has arranged $1.1 billion in financing, which will help it avoid the tragic fate of some fellow subprime lenders. It is also in discussions to renew other sources of financing.
Analysts believe that Accredited currently has sufficient liquidity to keep operating, even though its long-term outlook remains challenging. Accredited’s auditor, Grant Thornton LLP, has resigned and will not complete its audit of the lender’s financial statements for 2006. According to economists, Accredited has better management and portfolio than those of other subprime lenders, which means it has better chances to stay in business. It is also not a Real Estate Investment Trust, or REIT, and therefore is not required to distribute most of its income in dividends. Unlike many other mortgage companies, Accredited has not stopped lending, even though it issued fewer loans in the first quarter of 2007 than a year earlier.

Tuesday, April 3, 2007

30-year mortgage rates remain unchanged

30-year fixed mortgage rates remained at 6.16 this week, unchanged from last week. This rate is a little higher than the low for the year so far, 6.14% set early in March. A year ago, the 30-year fixed mortgage rate was at 6.35%.

15-year fixed-rate mortgages had an interest rate of 5.86% this week, down from 5.90% last week. Last year at this time the 15-year fixed rate was 6.00%.

Five-year adjustable-rate mortgages dipped slightly to 5.88%, down from 5.91 a week earlier. One-year adjustable mortgages saw a rate increase to 5.43%, from 5.40 last week. A year ago, one-year adjustable-rate mortgages carried an interest of 5.51%.

Clearly interest rates are lower than a year ago this time, but at this point, rates on some mortgages are rising and others are falling. Sales of existing homes are rising, while new homes remain unsold and total inventories are up. Buyers are waiting to see what happens and it seems to me that no one knows what exactly to do on this market. Talk about conflicting signals.

Purchase Applications Rising

The Mortgage Bankers Association (MBA) announced that mortgage purchase applications increased 0.1% last week, while refinancing applications dropped 0.5%, contributing to an overall drop of 0.2% in mortgage applications from the previous week. Analysts say that this is a sign that the spring home buying season is beginning and consumers are taking advantage of low interest rates and low property prices. Seriously, mortgage applications are decreasing, what’s so good about it?

At this point, I don’t see signs of any improvement in the market situation. A 0.1% increase in mortgage purchase applications does not a spring make. Let’s wait for some more consumer activity before drawing any conclusions. Supply is still higher than demand and there are probably fewer consumers who feel bold enough to take a loan or purchase a home. Both sellers and buyers are waiting to see what will happen because no one wants to put their money at risk. I guess it will take several weeks to collect sufficient data to hint at a new market trend.