Lender Bender

The ongoing trainwreck that is the residential mortgage lending business continued to unfold on Friday:

• New Century Financial, one of the largest subprime lenders, announced that it was the target of an SEC criminal investigation regarding New Century’s financial accounting and stock trading.
• Fremont General Corp., almost as big a subprime player as New Century, was issued a "cease and desist" order from the FDIC and has since announced that it is shutting down its subprime lending operation entirely.
• Two more lenders, Impac Mortgage Holdings and San Diego’s own Accredited Home Lenders, joined the earnings restatement parade, presumably because they too vastly underestimated the number of exotic loan borrowers who would end up in default once the home price appreciation perpetual motion machine ground to a halt.

Notably, it appears that the surprise default problem has spread from the subprime arena to that of so-called "Alt-A" loans. The nomenclature seems a bit fuzzy, but as near as I can tell, the term "subprime" is really reserved for borrowers with low credit scores. Alt-A loans are mortgages that are granted to borrowers with higher credit scores, but which allow non-traditional features such as low down payments, limited income documentation, or initially low "teaser" rates.

read more at voiceofsandiego.org