The Subprime Search
When the year began, the word “subprime” wouldn’t have registered a blip on anyone’s radar. I think it’s safe to say that certainly isn’t the case now, thanks to the troubles of New Century Financial, and other lenders who dealt with people with less than perfect credit.
Now, whenever we see a headline involving mortgages, we all think the same thing: Subprime?
We asked that question twice in the past two days -- and the answer was “yes” both times.
Today, H&R Block announced the sale of its Option One division to a unit of Cerberus Capital -- while yesterday, our parent company General Electric said it was laying off half the staff of its WMC Mortgage operation.
If you weren’t already familiar with either of these operations, it’s not obvious that they both specialize in subprime mortgages. But thanks to the prominence of the issue, our first thought was to ask that question -- and assign the proper importance to both those stories.
I have no deep thoughts on this issue other than this: It’s interesting that private equity has been out shopping for subprime lending operations. Will this turn into an eventual bonanza? No one can say now, but the smart money says “yes,” and there’s no doubt the first half of the “buy low, sell high” equation is in force.
For those in need of more immediate financial gratification: H&R Block shares jumped today, perhaps on the idea that it was ridding itself of a potentially big headache.