Investors received a rude wake-up call Wednesday when instead of reporting earnings as scheduled, New Century Financial Corp., the nation's second-largest sub-prime lender, announced it was pushing off its earnings release, and that shareholders should expect a surprise loss in 4Q06 instead of the $1.06 EPS the Street was expecting. Research firm First American LoanPerformance says that in November, payments were overdue on 12.9% of sub-prime loans packaged into mortgage securities, vs. 8.1% a year earlier. New Century's announcement came less than a day after HSBC reported its sub-prime division was also under significant pressure from rising defaults.
I hadn't realized the New was expected to report income of $1.06/share. That makes their reporting a loss that much more surprising.
In addition, notice the huge jump in late payments indicates there are serious problems in the sub-prime market. This issue isn't going away anytime soon.
7 comments:
I was fortunate enough to have a couple puts on NEW and NFI, bill fleckenstein did a good job of following those.
Just goes to show how quickly things can go sour. I like calculated risk's answer to the "why haven't things gotten ugly yet": "Hamlet dies in Act V"
Lenders are going to be tightening up their standards.
In CT we've seen a smaller version of the meltdown at at locally-based lender, Mortgage Lenders Network. Today's Hartford Courant has an interesting story:
http://www.courant.com/business/hc-mln0209.artfeb09,0,2322414.story?coll=hc-headlines-business
Just note the breathtaking speed with which this enterprise augured in - six months ago they were expanding operations and planning on moving to a new facility, three months ago they were circling the wagons and laying people off, today they're planning on closing up totally. This is just one of many similar lenders who seem to be teetering on the brink of the abyss.
I've commented on this issue several times. In the subprime market I think we are witnessing the beginning of a major financial crisis in the country.
And what will make it different is that it will mostly affect homeowners and it will strike with breathtaking speed this year.
We will be living in a different country by 4th quarter. Just watch...
Gotta love all this over the top commentary! There is torrent of liquidity out there and people are foaming at the mouth over a miniscule market that will have absolutely negligible impact on the macro US economy.
Subprime mortgages came to dominate the market in the past few years.
Lenders are now anticipating a 20% foreclosure rate.
That's a big problem.
That's more than 2 million borrowers who will lose their homes to foreclosure. And the contagion effect that all these foreclosures will have on the housing market and consumer confidence will be deadly, even if most people aren't directly affected by it.
I don't see how that is not a big problem, not just for the individuals and families suffering through it, but for the macro US economy.
So they lose their homes and go and rent. Big deal! So pay less in rent and have more to spend at the mall. People in this country are so spoiled. These aren't real problems.
No, you're right.
No big deal if 2 million homeowners and their families lose their homes.
What was I thinking?
I should relax and focus on the happy news that they'll have all sorts of extra money freed up to spend at the mall!
Party on, Garth!
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