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| Nonprime companies need to push yields higher — at the expense of origination.
The sector has reported massive production gains recently, but earnings and share prices are disintegrating. A prime example of this is New Century Financial Corp. The Irvine, Calif.-based company reported second quarter production of $13.4 billion — the highest ever. At the same time, it lowered its dividend guidance for the second time in 60 days to $7.25 per share, citing margin compression. Shares of real estate investment trusts have been pounded as a result. New Century shares, which had traded near $67 during the past year, are currently trading at just above $35. Impac Mortgage Holdings Inc. had solid second quarter fundings of $5.5 billion, almost $1 billion better than the first quarter. But as for earnings, Impac chief Joseph Tomkinson also cited “margin compression” as the culprit for the company’s quarterly net loss of $55 million. Yesterday, Impac announced it would cut its dividend, noting the continued rise in short term rates — or what it pays for funds. Impac shares are currently trading around $12, way off the 52-week high of over $27. NovaStar Financial Inc., which reported its second highest quarterly volume ever of $2.4 billion, has seen its shares tumble $26 from their 1-year high of $58. The notion that production has prevailed over earnings needs to change. New Century Chairman and CEO Robert K. Cole noted in his company’s latest earnings announcement the REIT will continue raising its rates, and other nonprime lenders should follow suit. |
Sam Garcia holds shares of several subprime REITs, including one mentioned in this story.
He worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.
e-mail: [email protected]
