More sub-prime woes

| March 9, 2007

And the hits just keep on coming:

BOSTON (Reuters) — General Electric Co.’s WMC Mortgage unit is laying off 460 staffers across the United States, representing about 20 percent of its work force, spokeswoman Brandie Young said Friday.

The mortgage lender has also stopped writing new loans to people who do not make down payments, she said.

“We’ve realigned our resources to be more consistent with today’s market,” Young said.

WMC is a major player in the subprime mortgage business – companies that lend money to people with less-than-stellar credit. Subprime lenders have been hit by rising defaults of late and more than 20 have quit lending or gone bankrupt in the past year.

[UPDATED 03/10/07 – 7:30 am]

And another subprime lender changes policy:

NEW YORK (Reuters) — Countrywide Financial Corp., the largest U.S. mortgage lender, Friday told its brokers to stop offering borrowers the option of a no-money-down home loan, according to a document obtained by Reuters.

Loans financing 100 percent of a home’s value are among those leading to a sharp rise in delinquencies at U.S. mortgage lenders. Such mortgages below “prime” quality have resulted in the closure, sale or losses at more than two dozen mortgage lenders, analysts said.

[UPDATED 03/12/07 — 0813 MDT]

Back to New Century:

Embattled mortgage lender New Century Financial Corp. announced early Monday that all of its lenders are cutting off its financing, that it has been found in default of many of its financial agreements, and that it does not have the funds necessary to meet its obligations under current circumstances.

In addition, the company said it does not anticipate being able to meet the March 16 extension for filing a 10-K statement with the Securities and Exchange Commission in which it would report on fourth quarter results and restate results for the full year….

The company is the No. 2 lender in a segment of the mortgage market serving people with less than top credit, a segment known as subprime mortgages that has been getting increased attention on Wall Street and by federal regulators. Its shares had already been badly battered over the last month on rising concerns of a possible bankruptcy filing….

The company’s filings said that several of its lenders were now demanding New Century and its subsidiaries repurchase all outstanding mortgage loans, and that its other lenders now all have the right to make that demand. It said if each of the company’s lenders make that demand, the aggregate repayment obligations would be approximately $8.4 billion.

“The company and its subsidiaries do not have sufficient liquidity to satisfy their outstanding repurchase obligations under the company’s existing financing arrangements,” said the company’s filing.

“We know they didn’t get their $8 billion by holding a bake sale. We knew it would touch other financial institutions; now we’ll see how,” said Art Hogan, chief market analyst at Jefferies & Co., about the impact New Century would have on the broader financial sector.

Here’s a publicly-accessible graphic from the Wall Street Journal showing the potential financial impact of the collapse of sub-prime mortgage lenders.

Original sub-prime posting by Bruce Henderson here. Stay tuned. ..bruce..

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Category: Credit Backlash, Economics, Main, Recession Watch

About the Author ()

Webster is Principal and Founder at Bruce F. Webster & Associates, as well as an Adjunct Professor of Computer Science at Brigham Young University. He works with organizations to help them with troubled or failed information technology (IT) projects. He has also worked in several dozen legal cases as a consultant and as a testifying expert, both in the United States and Japan. He can be reached at, or you can follow him on Twitter as @bfwebster.

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