Monday, March 05, 2007
Shares of subprime lenders including NovaStar Financial, Accredited Home Lenders and Fremont General dropped more than 25% on Monday as investors dumped holdings in an industry rocked by tighter regulation and bad debts.
"There's a lot of panic selling today," Rich Eckert, senior research analyst at Roth Capital Partners, said. "People are deciding they don't want to be exposed to this sector at all."
Subprime mortgages are offered to homebuyers who don't meet the strictest lending standards. Companies that specialize in these loans have suffered as housing prices stopped rising and interest rates climbed from record lows.
In the most acute example on Monday, shares of New Century lost more than two-thirds of their value to close at $4.56. The second-largest subprime lender in the U.S. said late Friday that it's facing a federal criminal probe and has breached a covenant with some major lenders that provide important financial backing.
Fremont said that it's getting out of the business after the Federal Deposit Insurance Corp., which helps regulate lenders, ordered it to stop selling some subprime mortgages.
there's got to be a dead-cat bounce in here, but subprime lending is pricing for bankruptcy.