Accredited, New Century Lead Subprime Meltdown
The meltdown among U.S. subprime mortgage lenders including New Century Financial broadened on Tuesday, as Accredited Home Lenders shares fell more than 60%, and investors worried that more lenders might restructure or seek bankruptcy protection.
Accredited, based in San Diego, said it needed to raise cash after paying $190 million demanded by its lenders, is cutting an unspecified number of jobs, and is exploring "strategic options," including raising new capital.
The news came a day after Irvine, California-based New Century said it doesn't have enough cash to pay its own lenders. That company on Tuesday had trading in its shares suspended by the New York Stock Exchange, and said it received a grand jury subpoena in a federal criminal probe.
Tuesday's disclosures are the latest blows in subprime, where lenders make loans to people with poor credit histories.
"There's not going to be many independent subprime lenders left," said Blake Howells, director of research at Becker Capital Management in Portland, Oregon, which invests $2.5 billion.
Lenders have been battered by rising defaults and demands from their own lenders to take back soured loans at a loss.
Lax underwriting standards contributed to the problems. More than two dozen lenders have quit the industry in the last year. Many analysts say New Century is on the brink of bankruptcy.
Accredited spokesman Rick Howe did not immediately return a call seeking comment. New Century spokeswoman Laura Oberhelman declined to comment.
In afternoon trading, Accredited skidded to a record low. New Century, now listed on the Pink Sheets, also fell. Shares were down 38 cents, or 22.9 percent, to $1.28.
Shares of other mortgage lenders also fell, as new data suggested that rising delinquencies are weighing on lenders that make higher-quality loans.
On Tuesday, the Mortgage Bankers Association said overall mortgage delinquencies rose to 4.95% in the fourth quarter from 4.67% in the prior quarter. Foreclosures also rose.
It said delinquencies were most precipitous among subprime adjustable-rate loans, where the rate increased to 14.44% from 13.22%. The trade group nevertheless said delinquencies rose among all loan types, and in 49 U.S. states.
"Subprime borrowers are more likely to be susceptible to the cumulative increases in interest rates that we have experienced and the resultant nationwide slowing of home price appreciation," Chief Economist Doug Duncan said.
In afternoon trading, shares of Kansas City, Missouri-based subprime lender NovaStar Financial Inc. fell as much as 22%.
Impac Mortgage , of Irvine, and IndyMac Bancorp, of Pasadena, Calif., which make loans to people who lack enough documentation to get prime loans, also fell.
Shares of Countrywide Financial , the largest mortgage lender, also tumbled.
Accredited said it has paid $190 million in margin calls on loan facilities since Jan. 1 as lenders demand more collateral. It said it received two-thirds of those calls since Feb. 15.
The company has said it ended 2006 with $345 million of available liquidity. It didn't say how much it now has.
New Century's disclosures came a day after it said its lenders plan to halt financing, and that it might be forced to repay more than $8 billion it doesn't have.
On Tuesday, it said it underestimated its obligation to Credit Suisse by $500 million, and owes $1.4 billion.