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
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?