KEY POINTS:
NEW YORK - The US mortgage meltdown broadened this morning (NZT), led by Accredited Home Lenders Holding and New Century Financial Corporation, as investors feared that the subprime lenders, which make loans to people with poor credit histories, would run out of cash.
Concern that
the crisis could spread to more mainstream lenders and worsen the US housing slowdown rippled through broader markets, pushing the Dow Jones industrial average down more than 200 points.
Tuesday's decliners included shares of major Wall Street lenders, commercial lenders and thrifts that have exposure to the mortgage sector, such as Bear Stearns, Countrywide Financial Corporation, JPMorgan Chase and Washington Mutual Inc. Major stock indexes declined as investors flocked to assets they considered safer.
Accredited, one of the largest independent subprime lenders, said it needed to raise money after paying $190 million demanded by its lenders. San Diego-based Accredited also said it is cutting an unspecified number of jobs, and is exploring "strategic options," including raising new capital.
Trading in shares of New Century, the largest independent subprime lender, was suspended by the New York Stock Exchange prior to delisting, and the company received a grand jury subpoena in a federal criminal probe.
On Monday, Irvine, California-based New Century had said it lacked enough cash to repay its own lenders.
Data released on Tuesday showed late payments on US mortgages at a 3-1/2 year high, feeding investor worries that lenders might restructure or seek bankruptcy protection.
Lenders have been battered by rising defaults and demands from their own lenders to take back soured loans at a loss.
"There's not going to be many independent subprime lenders left," said Blake Howells, director of research at Becker Capital Management in Portland, Oregon, which invests $2.5 billion.
Lax underwriting standards fueled the problems. More than two dozen lenders have quit the industry in the last year. Many analysts say New Century is on the brink of bankruptcy.
Accredited spokesman Rick Howe did not immediately return a call seeking comment. New Century spokeswoman Laura Oberhelman declined to comment.
Accredited skidded to a record low, falling $7.33, or 64.3 per cent, to $4.03 on the Nasdaq, after earlier declining to $3.80. New Century, now listed on the Pink Sheets, fell 83 cents, or 50 per cent, to 83 cents.
DELINQUENCIES RISE
On Tuesday, the Mortgage Bankers Association said mortgage delinquencies rose to 4.95 per cent in the fourth quarter from 4.67 per cent in the prior quarter. Foreclosures also rose.
Delinquencies rose in 49 US states and among all loan types, with the steepest increase among subprime adjustable-rate loans, the group said.
"Subprime borrowers are more likely to be susceptible to the cumulative increases in interest rates that we have experienced and the resultant nationwide slowing of home price appreciation," Chief Economist Doug Duncan said.
The chairman of the House Financial Services Committee, Rep. Barney Frank, said he plans to introduce legislation to restrict overly risky mortgages.
Meanwhile, Assistant Treasury Secretary Anthony Ryan told Reuters his department is monitoring subprime problems, which he said appear "fairly well contained."
And William Galvin, the Massachusetts secretary of state, said he subpoenaed documents from Bear Stearns and UBS AG's UBS Securities LLC related to research about subprime lenders.
GMAC LLC, a lender owned by General Motors Corporation and Cerberus Capital Management LP, on Tuesday said its ResCap mortgage unit posted a $651 million fourth-quarter loss, and "sharply reduced" its exposure to nonprime loans.
In afternoon trading, shares of Kansas City, Missouri-based subprime lender NovaStar Financial fell as much as 23 per cent.
Irvine-based Impac Mortgage Holdings and Pasadena, California's IndyMac Bancorp, which make loans to people who lack enough documentation to get prime loans, fell as much as 13 per cent and 9 per cent, respectively.
Shares of Countrywide, the largest mortgage lender, fell as much as 6 per cent.
Among other decliners, Bear Stearns fell as much as 7 per cent, Friedman Billings Ramsey Group as much as 19 per cent, JPMorgan as much as 5 per cent, Lehman Brothers Holdings as much as 6 per cent, and Washington Mutual as much as 6 per cent.
MARGIN CALLS
Accredited said it has paid $190 million in margin calls on loan facilities since Jan. 1 as lenders demand more collateral. It said it received two-thirds of those calls since Feb. 15.
The company has said it ended 2006 with $345 million of available liquidity. It didn't say how much it now has.
New Century said its lenders plan to halt financing, and that it might be forced to repay more than $8 billion it doesn't have. On Tuesday, it said it owes $500 million more than it previously disclosed to Credit Suisse Group Inc.