March 05, 2007

NEW Century Down 70% After it Announces it is Under Investigation by Federal Regulators: If You Listened, I Would Have Made You Money!



Nothing kills a stock quicker than getting the Feds involved. Welcome to the implosion of the subprime market. Like I mentioned on:

2/12 – Did You Feel That? Housing Just Hit The Third Rail

And

2/23 True American Idol: Subprime Mortgage Lenders Send off a Blast Heard Around the World.

We’ve seen the direct implosion of New Century Financial coming for at least one-month. Most housing bears knew to short these stocks including Fremont and NovaStar that are also getting rocked to the ground today. The major thing that is hitting the newswires today is that Federal authorities will now be getting involved in this mess (hear Enron anyone?). Of course anyone realizes that when:

1. You sell overpriced homes.
2. Leveraged to the hilt on the backs of subprime borrowers.
3. These borrowers default.
4. You get the loans kicked back to you.
5. Try selling overpriced homes on overpriced mortgages in a quickly decling market.

And all this equals disaster. That is why NEW fell an unprecedented 63% today; in the last month this stock has gone from a price point of 30 to currently 5 (I’m sure it will go lower since this company is pretty much toast). This is what NEW had to say:

“The lender disclosed Friday that it is the subject of a federal criminal probe into its accounting and trading in its securities. New Century also said that if it is unable to obtain waivers from its lenders or locate new funding its auditors could publicly question its ability to continue in business.”


Whoops! Looks like NEW was going no-doc on their accounting practices. And this is a major deal since they are [were] the third largest subprime lender in the United States. The only question that remains is will this subprime market crash spillover into other sectors of the housing market.

Not only that, but the need to confess is important and you should read this confession from someone in the Subprime trenches over at NEW:

"So let me begin in 2003 when my wife Jeanine and I both went to work at New Century as Wholesale Account Executives. Jeanine had been in subprime wholesale since its inception and I was coming from a 15 year background in conventional retail lending. What led us to New Century was a sordid story in itself. Our transition began before New Century when Jeanine had been sexually harrassed and subsequently mistreated by management at BNC Mortgage in Irvine. At that time we were forced to retain a high profile attorney who wanted desperately to pursue the case. Financially there was a lot at stake. Jeanine’s income at the time was well over a quarter of a million dollars per year and growing.

The culture at BNC was one of ‘you’ve got to party with the managers’ in order to get anywhere with the company. Their annual sales conference was of course in Las Vegas, no spouses allowed. Pictures of managers in jacuzzis with strippers and accounts of infidelity among married managers and female subordinates followed every event. BNC on a whole was a sexually predatory environment to say the least. As a matter of fact, and no BNC employee at the time will dispute this, BNC’s top rep, female, with disgustingly huge boobs, tiny waste, an easy 8 on a 10 scale and who came to work at the company with absolutely no lending background became the top rep overnight by sleeping with management - and not just one manager, but many."


Read the rest at:

Confessions of a Subprime Casualty

Need we say more?

5 Comments:

IrvineRenter said...

In my post on Feb 28, I said I tried to short NEW but my broker wouldn't let me. Now I really, really, REALLY wish I had shorted that stock.

Anonymous said...

With the 10 billon dollar write down of HSBC sub prime loans: Does this mean that 10 billion dollars worth of house loans went sour? If so at 200k per house, that like 50,000 houses.

Dr Housing Bubble said...

Irvinerenter:

Sorry for that luck. There will be other companies hitting the chopping blocks in the next few months so gear up and be ready the 2nd time around.

Dr. Housing

Dr Housing Bubble said...

anon:

Not exactly. They'll get these loans kicked back in what is called buybacks. Essentially they'll get the asset back but keep in mind foreclosure is a long and expensive process. Not only that, once they acquire the home they'll need to unload it in a decling market.

Not exactly a good way to do business. Plus, places like Fremont received cease and desist orders essentially closing their doors.

The party is ending little by little.

wittbelle said...

That BNC company sounds like a sweet place to work. Just scratching the surface of Southern California sleaze.