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Shares of Battered Subprime Lenders Rebound

Published: Thursday, 15 Mar 2007 | 3:48 PM ET

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By: CNBC.com

Shares of several subprime lenders rebounded sharply on Thursday, including Accredited Home Lenders, which skyrocketed on speculation it might be acquired.

The stocks have been helped over the past two days as talks accelerates about large investment banks eyeing purchases in the subprime arena. Bear Stearns [BSC Loading... () ], Wall Street's largest underwriter of mortgage-backed securities, said earlier Thursday that it could buy subprime loans from troubled lenders.

The financial sector has been under pressure since last week, as problems within the subprime industry, which makes loans to borroweres with poor or spotty credit histories, spread. Several lawmakers have stepped up the effort to find out what went wrong in the home finance market and how it could be fixed. In the latest development, New York Attorney General Andrew Cuomo said on Thursday that his office is looking into the sector.

Default rates in the subprime segment of the U.S. mortgage market have jumped in recent months as the housing industry slowed and prices fell. At least 20 lenders in the subprime mortgage sector, which serves borrowers with poor credit histories at high interest rates, have gone out of business as a result.

But as concerns that the beleaguered mortgage sector could hurt the economy wore on, several subprime lenders were climbing higher.

Accredited Home Lenders [LEND Loading... () ] soared amid speculation it might get a capital infusion or be acquired, with Goldman Sachs [GS Loading... () ] cited by traders as a possible partner.

Accredited was not immediately available for comment and Goldman Sachs declined to comment. Accredited has said it needs to raise money after paying $190 million that lenders demanded and that it is exploring "strategic options," including raising new capital.

New Century Financial [NEWC Loading... () ] - which is reportedly close to bankruptcy and whose shares are being delisted from the New York Stock Exchange - jumped more than 100% percent to $1.40 on the Pink Sheets. The stock's price gains came after Bear Stearns Chief Financial Officer Sam Molinaro said he expects large sales of subprime mortgage assets as the shake-up in that market opens up opportunities.

Shares of IndyMac Bancorp [NDE Loading... () ], which specializes in making loans to creditworthy customers who don't have enough documentation to get prime loans, rose after releasing a statement on Thursday clarifying its "minimal" subprime exposure. It said subprime loans represented only 3% of its $90 billion loan production last year.

The company, which earlier this month warned that this year's profit would likely be lower than in 2006, also said its asset-backed securitizations classified as subprime total $6.8 billion and represented just 4.4% of its $156 billion portfolio of loans serviced as of Dec. 31.

Shares of Impac Mortgage [IMH Loading... () ] also rose earlier even though it said on Wednesday that the percentage of delinquent loans in its long-term mortgage portfolio doubled to 6.12%.

Impac President William Ashmore told Reuters he is comfortable with the company's current liquidity position and also said he's made an effort to make sure his company doesn't get lumped in with subprime lenders.

Impac - which extends loans to borrowers who don't qualify for loans backed by government agencies, but who have better credit than subprime - has limited exposure to the troubled sector. But the company could still hurt by the same issues plaguing subprime.

Other subprime lenders on the rebound include Novastar Financial [NFI Loading... () ]and Fremont General [FMT Loading... () ], which recently received a cease-and-desist order from the Federal Deposit Insurance Corp. over its subprime mortgage and commerical real estate lending practices.