IMF warns subprime woes may spread, dollar falls

NEW YORK (Reuters) - Fallout in the U.S. subprime mortgage market could spread to related markets, the International Monetary Fund warned on Tuesday, as nagging worries about housing helped weaken the dollar.

Shares of real estate investment trust American Home Mortgage Investment Corp. AHM.N tumbled for a second day on Tuesday after the REIT slashed its profit forecast last week.

The company’s shares fell on investor concern that problems in subprime mortgages may be spreading to higher-quality housing loans, a view the IMF also gave credence to.

The IMF said in its semi-annual Global Financial Stability Report that a decline in the subprime market was more rapid than expected at this point in the overall housing downturn.

Looser underwriting standards may have gone beyond the subprime sector into portions of “Alt-A” mortgages, the next-riskiest area, the IMF said. In addition, there could be losses in other consumer credit markets, including credit card and subprime auto loan asset-backed securities, it said.

“Financial supervisors need to identify the potential for spillovers from the cooling of the housing market and continue ensuring that mortgage underwriting standards are maintained,” the IMF said.

At least 20 lenders in the subprime mortgage sector, which serves borrowers with poor credit histories at high interest rates, have gone out of business as default rates have jumped.

The crisis has triggered broader concerns that the fallout may spread to mainstream lenders and damage the U.S. economy.

Homebuilders continue to report an industry slowdown. D.R. Horton Inc. DHI.N, the largest U.S. homebuilder, said on Tuesday orders for new homes tumbled 37 percent in the last quarter.

D.R. Horton also said selling this spring has been slower than usual, suggesting the industry has yet to hit bottom.

Chairman Donald Horton said conditions remain tough in most markets because of high inventories of unsold new and existing homes. The housing market downturn has hit homebuilders and related sectors hard, and tightened loan policies due to the subprime mortgage crisis have exacerbated the industry’s pain.

D.R. Horton’s net sales orders in its quarter ending March 31 fell to 9,983 homes from 15,771 a year earlier. The dollar value of orders sank 41 percent to $2.6 billion, it said.

The biggest decline for orders was in California, where they fell 59 percent to 1,107 homes, and the biggest dip in dollar value of orders also was in the state, falling about 57 percent to $533.5 million.

Subprime lender New Century Financial Corp. NEWC.PK urged a federal bankruptcy judge to speed up the auction and sale of its main lending business while it still has value.

New Century wants to sell its loan origination business by early May, and sees an “exigent and immediate need” to set up bidding procedures, according to a late Monday filing with the U.S. bankruptcy court in Wilmington, Delaware.

The Irvine, California-based company previously said it planned to sell major assets within 45 days of its April 2 bankruptcy filing, or around May 17.

New Century asked U.S. Bankruptcy Judge Kevin Carey to schedule an April 17 hearing to set up bidding procedures, and a May 15 hearing to approve a successful bid.

The company previously agreed to sell its loan servicing unit to hedge fund Carrington Capital Management LLC for $133 million, down from an original $139 million.

Subprime lender Accredited Home Lenders Holding Co. LEND.O said on Tuesday it had hired Squar, Milner, Peterson, Miranda & Williamson LLP as its independent auditor, replacing Grant Thornton, which resigned from the role last week.

After Accredited shares surged 8.8 percent to $10.04 in electronic, pre-market trading, shares pared gains and were off 7 cents to $9.16 in late afternoon trading.

Shares of American Home Mortgage fell $2.32, or 10.6 percent, to $19.60 in late afternoon trade on the New York Stock Exchange.