Accredited, New Century lead subprime meltdown
NEW YORK (Reuters) - The mortgage meltdown broadened on Tuesday, led by Accredited Home Lenders Holding Co. LEND.O and New Century Financial Corp. NEWC.PK, as investors feared that the subprime lenders, which make loans to people with poor credit histories, would run out of cash.
Concern the crisis could spread to more mainstream lenders and worsen the U.S. housing slowdown rippled through other financial markets, pushing the Dow Jones industrial average .DJI down 243 points, or 2 percent.
"This is now becoming a liquidity crisis" in the mortgage sector, said Angelo Mozilo, the chief executive of Countrywide Financial Corp. CFC.N, the largest mortgage lender.
"It's going to get uglier," especially if investors continue to punish healthier lenders, as well as weak ones, Mozilo added. He spoke on CNBC television.
Tuesday's decliners included shares of major Wall Street banks, commercial lenders and thrifts that have exposure to mortgages, including Countrywide, Bear Stearns Cos. BSC.N JPMorgan Chase & Co. (JPM.N) and Washington Mutual Inc. (WM.N)
Accredited, one of the largest independent subprime lenders, said it needed to raise money after paying $190 million that lenders demanded. San Diego-based Accredited also said it is cutting an unspecified number of jobs and exploring "strategic options," including raising new capital.
Trading in shares of New Century, the largest independent subprime lender, was suspended by the New York Stock Exchange prior to delisting, and the company received a grand jury subpoena in a federal criminal probe.
On Monday, Irvine, California-based New Century had said it lacked enough cash to repay its own lenders.
Data released on Tuesday showed late payments on U.S. mortgages at a 3-1/2 year high, feeding investor worries that lenders might restructure or seek bankruptcy protection.
Lenders have been battered by rising defaults and demands from their own lenders to take back soured loans at a loss.
"There's not going to be many independent subprime lenders left," said Blake Howells, director of research at Becker Capital Management in Portland, Oregon.
More than two dozen subprime lenders have quit the industry in the last year. Many analysts say New Century is on the brink of bankruptcy.
Accredited spokesman Rick Howe did not return a call seeking comment. New Century spokeswoman Laura Oberhelman declined to comment.
Accredited skidded $7.43, or 65.2 percent, to $3.97, its lowest close ever. New Century, now listed on the Pink Sheets, fell 81.5 cents, or 49.1 percent, to 84.5 cents.
FORECLOSURES RISE
On Tuesday, the Mortgage Bankers Association said lenders began foreclosure against more than one of every 200 U.S. mortgage borrowers in the fourth quarter, a record.
Delinquencies also increased in 49 U.S. states and among all loan types, with the steepest increase among subprime adjustable-rate loans, the group said.
"Some lenders who have been exiting the business stated that they didn't underwrite properly the risk in (subprime) loans," Chief Economist Doug Duncan said.
The chairman of the House Financial Services Committee, Rep. Barney Frank, said he plans to introduce legislation to restrict overly risky mortgages.
Meanwhile, Assistant Treasury Secretary Anthony Ryan told Reuters that subprime problems appear "fairly well contained."
Massachusetts Secretary of State William Galvin said he subpoenaed documents from Bear Stearns and UBS AG's (UBSN.VX) UBS Securities LLC over the quality of their research about subprime lenders.
Losses at two other large lenders were also revealed.
GMAC LLC, a lender owned by General Motors Corp. GM.N and Cerberus Capital Management LP, said on Tuesday that its ResCap mortgage unit posted a $651 million fourth-quarter loss, and "sharply reduced" its exposure to nonprime loans.
And H&R Block Inc. (HRB.N), the tax preparer, late on Tuesday said it expects to delay filing its quarterly report after a write down at its Option One subprime unit, which it is trying to sell.
BROAD-BASED DECLINES
Among Tuesday decliners, two subprime lenders, Kansas City, Missouri-based NovaStar Financial Inc. NFI.N and Santa Monica, California's Fremont General Corp. FMT.N, fell 19.1 percent and 8.2 percent, respectively.
Irvine-based Impac Mortgage Holdings Inc. IMH.N and Pasadena, California's IndyMac Bancorp Inc. NDE.N, which make loans to people who lack enough documentation to get prime loans, fell 11.2 percent and 7.6 percent, respectively.
Countrywide fell 4.7 percent, Bear Stearns fell 6.65 percent, Friedman Billings Ramsey Group Inc. (FBR.N) 16.25 percent, JPMorgan 4.4 percent, Lehman Brothers Holdings Inc. LEH.N 5.9 percent and Washington Mutual 5 percent.
FBR, a small investment bank, said late on Tuesday it would explore strategic alternatives to maximize the value of its mortgage lending business First NLC. A sale of a business is often included in such alternatives.
Accredited said it has paid $190 million in margin calls on loan facilities since January 1 as lenders demand more collateral. It said it received two-thirds of those calls since February 15.
The company has said it ended 2006 with $345 million of available liquidity. It didn't say how much it now has.
New Century said its lenders plan to halt financing, and that it might be forced to repay more than $8 billion it doesn't have.
(For more about the subprime mortgage crisis, see nN07265694)
(Additional reporting by Lynn Adler in New York, Muralikumar Anantharaman in Boston, Jui Chakravorty in Detroit, and Svea Herbst-Bayliss and John Poirier in Washington)
