Archive for August, 2007

Here’s a subprime lender that has found a way out. They are suing the firm that agreed to purchase them, even thuogh their company value has completely tanked.

Accredited Home Lenders Holding Co. (LEND.O) said on Monday it had sued private equity firm Lone Star Funds, seeking to force it to complete the $400 million takeover of the money-losing subprime mortgage lender.

Lone Star had agreed in June to pay $15.10 per share for San Diego-based Accredited. On Friday, however, Lone Star said it would not go through with the buyout, citing a “drastic deterioration in the financial and operational condition of the company.”

Accredited said on Monday that the merger agreement “expressly provides that Lone Star may not refuse to honor its obligations based on any deterioration in the business.” If shareholders tender more than half of Accredited shares by Tuesday, all conditions of the merger will be met, Accredited said.

Shares of Accredited were down fell about $3.21, or 36 percent, at $5.70 in premarket electronic trading.

Ouch. If the merger agreement states they can’t back out, even for “deterioration in the business”, that’s going to hurt.

The US home loan crisis looks set to continue gripping world markets but the effect could be diluted because the risk is spread among investors around the globe, analysts say.

The European Central Bank pumped 155.85 billion euros (212.98 billion dollars) into the eurozone banking market on Thursday and Friday as central banks across the globe rushed to ward off a global credit crunch linked to the US subprime loan market.

…

“There are strong parallels with the crisis in the mid-90s so you have to be a brave investor to buy shares at the moment,” he said.

“But history shows that everything will be forgotten in six months and the market will recover.”

The US Federal Reserve and Japanese central bank had made similar interventions to ensure that the markets continued to function normally, with the Fed injecting 62 billion dollars into the market.

Diluted or not, the whole situation sucks for a lot of people, and I think it’s going to get a bit worse than the “forgotten in six months mid-90s event”.

Not only is HomeBanc closing up their mortgage lending business, they have filed for Chapter 11 bankruptcy protection.

HomeBanc Corp., the Atlanta-based mortgage lender that ceased new loan applications this week, has filed for Chapter 11 bankruptcy protection, the company’s investor relations director said Friday.

The filing was made late Thursday in Wilmington, Delaware, said Carol Knies, HomeBanc’s vice president of investor relations.

HomeBanc, which had been reorganizing operations amid stress in the housing market, said Monday it would sell its mortgage operations and related assets to Countrywide Financial Corp. because its no longer could access its credit lines to fund new loans.

HomeBanc has listed assets of $5.1 billion and debt of $4.9 billion according to the 22-page filing. Among its biggest creditors: JPMorgan Chase & Co., Fannie Mae, Freddie Mac, Wells Fargo Bank, Commerzbank AG, U.S. Bank, PriceWaterhouseCoopers and BNP Paribas.

Once the dust settles with all of these subprime lenders, we’re going to see a much bigger problem with the companies who financed them, you can bank on it.

Here’s more news from the subprime lending front.

NovaStar Financial Inc. (NFI.N) a struggling subprime mortgage lender, on Thursday posted a large second-quarter loss, hurt by rising credit losses and a writedown of home loans still on its books.

Kansas City, Missouri-based NovaStar posted a net loss of $52.9 million, or $5.84 per share, compared with a profit of $34.7 million, or $3.97 per share, a year earlier.

Results included $116.9 million of pre-tax writedowns, including $73.3 million for credit losses and the rest to reduce the value of mortgage loans and securities.

Loan volume fell 73 percent to $773.7 million, and the real estate investment trust said it is having more difficulty selling loans it makes. NovaStar said it has faced $76.5 million of margin calls since June 30.

What happens when all of the mortgage lenders have “reduced the value of the mortgage loans”? It’s not like the people who owe the money will be allowed to make lower payments.

Doesn’t Mattel know that the Chinese don’t want us making such a big deal about the poisonous products imported into the United States.

Mattel Inc. on Tuesday identified the Chinese vendor that made nearly 1 million Fisher-Price toys that were recalled last week because they may contain lead.

Mattel said Lee Der Industrial Company Ltd., located in Guang Dong province, made the 967,000 toys sold under the Fisher-Price brand in the United States between May and August.

Knowing the name of the vendor doesn’t help those of us with children who may have been exposed to lead while they played with their favorite toys, but it should help other toy suppliers discover whether or not the products they sell are a risk as well.

Mattel, the world’s largest toy maker, apologized to customers for the recall and said the move would cut pretax operating income by $30 million.

Do I care about their pretax operating income? Hell no. Once again, just like Menu Foods, Mattel decides to sqeeze financial news into their responses rather than focusing on the issue in front of them. They could have, at the very least, explained what they were doing to help children affected by the recall, or something like that.

Heck, I am surprised though. They actually apologized to the customers. I wonder if they had used the word “investors” in that sentence if anyone would have noticed?

[CrossPosted at Slobokan's Site O' Schtuff]

The original lender when we bought our home, was HomeBanc, but the mortgage was sold twice before I actually signed the paperwork.

HomeBanc Corp., the Atlanta-based lender that has been hit hard by the housing downturn, said Tuesday it is closing its mortgage loan business and selling some of the assets to Countrywide Financial Corp.

Homebanc will continue to service existing loans and the change should have little or no affect on Homebanc’s more than 42,000 mortgage holders.

Still, with the scale-back, Homebanc becomes another domino in a cascade of failures and cutbacks in the teetering mortgage industry. The impact has roiled the economy, upset stock markets and made buying or selling a house a lot harder.

One more domino falls.

The American Home saga continues.

American Home Mortgage Investment Corp. became the second-biggest residential lender to file for bankruptcy protection this year, adding to signs that late payments have spread to homeowners with good credit records.

The company sought federal court protection from creditors in Wilmington, Delaware, today, saying it had assets of more than $100 million and debts of more than $100 million owed to more than 100,000 creditors. The filing comes after the company announced Aug. 2 it would halt operations and slash staff.

American Home specialized in mortgages for people who fall just short of top credit scores. More than half a dozen competitors have declared bankruptcy this year as defaults spilled over from “subprime’” borrowers with the worst repayment records to those with more reliable payment histories.

“Their sources of funding have all dried up,” said Mark T. Power, an attorney who is representing some creditors in the case. ”This case is going to be very similar to New Century.”

New Century Financial Corp., based in Irvine, California, became the largest home lender to seek court protection from its creditors when it filed for bankruptcy in April. The company is now being liquidated. Melville, New York-based American Home also is probably going to be forced to liquidate, Power said in an interview Friday, after American Home told employees that it was planning to declare bankruptcy.

So how far with things fall before they pick up again?

[Source: Bloomberg]

If I was looking to turn a company around and make the most of the situation, the last person I think I would hire would be Nardelli.

As the deal to sell Chrysler to Cerberus Capital Management finally came to a close on Friday, there was one rather salient fact that slipped under the radar. Robert Nardelli was appointed Chrysler’s chairman and chief executive officer upon the deal’s completion.

That’s right. According to documents obtained by Fortune, the disgraced former CEO of Home Depot, who became the poster child for excessive CEO compensation, has taken the reigns at Chrysler.

…

However, a source inside Cerberus says that Nardelli will receive only $1 a year in compensation. He would not go into details as to how the rest of Nardelli’s compensation would be worked out, but he would only add that his salary is directly tied to the success of Chrysler’s turnaround.

Oh, you can bet his compensation is tied to the turn around, and you can bet he’s going to get compensated quite well at some point. It’s in his nature.

Don’t you find it hard to believe that all these financial “experts” never saw this coming?

More signs of weakness in the mortgage market, another surge in oil prices and a Federal Reserve rate decision could create more turbulence for Wall Street this week.

Widening fallout from the U.S. housing slump has rattled credit markets, putting investors on edge about the outlook for corporate takeovers and share buybacks — two catalysts of the market’s recent rally to record highs.

On Friday, Standard & Poor’s cut its ratings outlook on the debt of investment bank Bear Stearns Cos.(BSC.N), fanning concern that troubles in the subprime mortgage market are spreading, which could threaten the economy’s health.

Two years ago, my wife and I were talking about this very topic. We were discussing the way lenders were bending the rules so more people could buy houses that cost a lot more than traditional financing would allow.

I think we’re just seeing the tip of this disastrous iceberg.