Strong competition in the subprime sector prompted Accredited Home Lenders Holding Co. to warn investors about earnings.
The San Diego-based lender announced today it does not see itself reaching the previously-reported outlook of fully-diluted earnings of at least $4.50 per share, citing "increasing turbulence in the nonprime mortgage market" as the reason.
Shares of Accredited, which trade under the symbol LEND, were off more than $5 a share following the announcement.
Among the factors leading to the changed outlook is that loan originations have not increased as much as Accredited anticipated and continue to be adversely affected by both pricing competition and the product contraction that has been prevalent in the market throughout the year, according to the announcement.
"We believe the ferocity of pricing competition is due, in part, to the current wave of merger and acquisition activity as several nonprime mortgage originators attempt to maintain production levels to become or remain attractive to potential investors," said James Konrath, chairman and chief executive, in the announcement.
Accredited recently acquired Aames Investment Corp. -- a real estate investment trust that was a colossal failure in terms of share price performance.
Whole loan premiums and securitization returns, which are under more pressure than expected, and higher-than-anticipated delinquency levels from production periods in 2005 and 2006 were other factors cited as contributing significantly to the turbulence.
"We intend to capitalize on the fundamental strengths of the company -- a deeply experienced management team, diversification in all operational areas, and a profit culture driven to all levels of the company -- as we navigate through the current turbulent cycle in the nonprime mortgage industry," Konrath added.