Stocks Slide on Default Worries
Even before New Century went on the skids, the stocks of many publicly traded nonprime lenders were falling fast.
An Internet company that focuses on selling foreclosed homes says that all the attention currently being paid to rising defaults is behind the steep decline seen in some mortgage-related stock prices recently.
TheHomeBuyingCenter.com said that rising rates and slumping home prices were the two key factors behind the hit that companies such as New Century and HSBC recently have experienced.
New Century's stock price dropped by $10.92, or 36.2%, after the company reported accounting errors that caused the firm to inaccurately track how some mortgage loans have declined in value. That news hit the market on Feb. 7. Things haven't gotten any better since for New Century's shareholders. (See related story, page one).
Also, HSBC Holdings, the large European bank, saw its stock fall 2.7% on Feb. 8, after saying that it has had to increase its loss reserve for nonprime U.S. mortgage loans to $10.6 billion, 125% higher than it had been three months earlier.
Patrick McGilvray, president of TheHomeBuyingCenter.com, says that some in the industry have themselves to blame for the weakening of mortgage stock values.
"The world really is flat and completely interconnected today. The recklessness of mortgage banks that loaned money to people to buy homes in an insanely skyrocketing residential real estate market while putting no money down and making interest-only payments is coming back to haunt them," Mr. McGilvray said in a news release. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com