Subprime Market Jitters Subside As Two Lenders Find Funding
Fears that turbulence in the high-risk mortgage market would spread eased on Wednesday after two lenders managed to secure enough money to stay afloat.
Meanwhile, hedge fund operator Citadel LP has taken a 4.5% stake in Accredited Home Lenders Holding
"That consolidation effort makes it less of a contagion," said Mark Ficke, head of U.S. government bond trading at BNP Paribas in New York.
Still, troubled lenders were paying a steep price for their newfound cash.
Accredited will pay a hefty 13% annual interest to Farallon Capital Management, a San Francisco hedge fund that has offered the company a five-year loan for $200 million. Fremont itself acknowledged it was taking a $140 million pre-tax hit on the sale of its loans.
It was too early to say whether such fresh sources of funding would be enough to keep a lid on the housing debacle, which many analysts worry could have a ripple effect through the economy.
Investors are especially keen to hear the Federal Reserve's thinking on the matter, with the release of the central bank's policy statement due out in a few hours.
Preemptively, the bond market turned lower on the idea that limited fallout from the subprime crisis would translate into a resilient economy that did not require any additional monetary stimulus.
The latest data hardly pointed to economic acceleration, though, with U.S. mortgage applications slipping even as interest rates hovered near recent lows.
More Subprime Oversight Sought
As the troubles in the subprime market simmered, politicians in Washington have been calling for greater oversight, with a congressional panel expected to hold a hearing on the matter on Thursday.
But executives from New Century Mortgage
Subprime lenders are struggling because of rising delinquencies and defaults, and in many cases because they lowered their underwriting standards too far. Many, including Fremont, have announced plans to cut jobs.
The layoffs have extended beyond the subprime sector, however, affecting larger banks like Wells Fargo
Wells Fargo's cuts are on top of 323 previously announced job cuts in the home loan unit, including 252 in Fort Mill, S.C., and 71 in Concord, Calif.. Wells Fargo shares slipped on the NYSE.