2nd Time Around for New Century – Mortgage Industry Insider from MortgageDaily.com
DALLAS, March 12 /PRNewswire/ New Century Financial Corp. survived the subprime crisis of 1998 even as companies like Conti Mortgage, Industry Mortgage Co. and FirstPlus Financial collapsed, according to https://www.mortgagedaily.com — the dominant source of online news for the mortgage industry.
In 1993, fueled by low rates, mortgage bankers were enjoying heavy refinance activity. But by 1994, rates rose, fundings sank and lenders were left with excess capacity.
Faced with declining business, originators either exited real estate finance or expanded into subprime lending — which had been turbocharged from securitizations.
Eager to grab their share of a booming market and motivated by gain-on-sale accounting — which enabled originators to book a lifetime of estimated loan profits when the loan was securitized, companies like Conti and IMC paid as much as 10 percent premiums to acquire loans.
But the life of these loans turned out to be far less than estimated — causing some hefty earnings charges.
By 1998 — when Russians defaulted on bond payments, Asian markets were in turmoil and investors became averse to risky bonds — subprime lenders saw the market for their mortgages crater.
In IMC’s case, the company had hedged its portfolio with Treasury-based instruments. But when the 1998 bond crisis hit, Treasury yields fell while subprime mortgage yields rose.
New Century sold its servicing business and barely survived the 1998 crisis. (https://www.mortgagedaily.com/BondCrisisWhitePaper081904.asp)
But the with mortgage REIT’s announcement last week that it stopped taking new business, New Century might not weather the current storm. (https://www.mortgagedaily.com/NewCenturyApplications030807.asp)
Other recent casualties include former Inc. 500 member FMF Capital LLC, which announced Friday it will wind down operations (https://www.mortgagedaily.com/ClosureFmf030907.asp); Wachovia’s correspondent lending division, which notified its customers Wednesday it would shutter the business (https://www.mortgagedaily.com/WachoviaCorrespondent030707.asp); and Domestic Bank, which notified brokers it shut down its wholesale division because of the low bids and lack of bids on some of its nonconforming loans. (https://www.mortgagedaily.com/ClosureDomestic030707.asp)
But one subprime company, Delta Financial Corp., bucked recent trends and reported a profit as well as record originations. (https://www.mortgagedaily.com/DeltaProduction030707.asp)
Complete nonprime coverage at: https://www.mortgagedaily.com/subprime.asp
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