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It's been a busy few months in the sub-prime mortgage (SPM) market. All was well and good until December when three mortgage lenders closed their doors, declared bankruptcy or both. Now two more lenders have issued big warnings.
A new website called "The Mortgage Lender Implode of Meter" is now tracking the defaults in the SPM market. So far, the picture is incredibly ugly.
Here are some of the more notable problems.
Ameriquest Mortgage:
As recently as 2005, Ameriquest was the No. 1 lender to homebuyers with imperfect credit. The company has scaled back dramatically in the past year amid a restructuring and a downturn in the subprime mortgage business.
Privately held Ameriquest has been a rumored takeover target for years. Recent reports are being taken more seriously amid a wave of consolidation in subprime lending and a report that JPMorgan Chase & Co. was hired to shop ACC’s mortgage units.
HSBC and New Century Financial -- the first and second largest SPM lenders are increasing loss reserves, or completely restating earnings because of SPM losses
HSBC Holdings and New Century Financial may end up giving stock and bond investors a renewed appreciation for risk.
Shares of both companies tumbled last week after they said losses on so-called subprime mortgages had exceeded their forecasts. Credit-default swaps, or contracts to protect against defaults, on bonds backed by subprime loans became more costly.
U.S. home builders, whose shares have been rallying since July, also retreated. Toll Brothers, the biggest U.S. builder of luxury homes, contributed to the decline by reporting lower revenue and orders for the quarter that ended in January.
The shock waves sent by HSBC, the biggest provider of mortgages to U.S. borrowers who have less-than- stellar credit records, and New Century, the second-largest, rippled through markets that had grown increasingly tranquil.
Mortgage Lenders Network and has filed for bankruptcy.
Mortgage Lenders Network USA Inc. filed for Chapter 11 bankruptcy protection earlier this week, according to company spokesperson Christopher Capot. Capot says the lending giant has a scheduled preliminary hearing on Wednesday and will not be making any public statements until after the hearing.
Ownit Mortgage closed and declares bankruptcy
he rising volume of such repurchases has plagued the sub-prime industry recently and drove Ownit Mortgage Solutions Inc. of Agoura Hills, another large sub-prime lender, into bankruptcy proceedings.
Merrill Lynch is pulling its lending to he SPM market.
Merrill Lynch & Co. -- which has been stung by two high-profile subprime bankruptcies in six weeks -- is conducting margin calls on certain B&C originators that receive financing through the firm's warehouse group.
Here's the central problem:
"This is the leitmotif of this whole thing: These people don't really know what they are doing in mortgage banking," says Plesser. "They are writing whatever loans just to write loans, thinking they will worry about it later. But now it's later."
While I am all for making money and moving into a market, we are now talking about further inflating the SPM mortgage market with increased risk. That's not a good thing for anybody.
This story continues to unfold. We have now had two fast-moving news periods. The first was in December and the second over the past few weeks. We'll have to see if this trend continues.