Subprime lender stocks fell along with the ABX.HE index last week, as more news of troubled subprime lenders reverberated through the market. And unlike in the recent past, the news affected the second and third-largest U.S. subprime lenders - HSBC Holdings Plc and New Century Financial Corp., respectively. While sources betting against the subprime sector could almost be described as giddy, those on the other side of the fence worried that the damage 2006 vintage loans seemed to be causing for lenders might be the beginning of unprecedented defaults.
The triple-B-minus index of the ABX.HE 06-2 series hit a low of 85 on Wednesday, while shares of Irvine, Calif.-based subprime lender New Century plummeted nearly 30% to the lowest price in more than eight years. New Century, awash in subprime mortgage buyback requests, posted a fourth-quarter loss, revised this year's loan origination estimate downward and announced it would be restating earnings for the first three quarters of 2006. Citing "internal weaknesses," the lender said the low price it was receiving on the secondary market for loans it had resold after being subject to repurchase requests needed to be factored into earnings. New Century also stated that the combination of a rising volume of repurchased loans and claims in the fourth quarter, along with a downward revision in the fair value of its residuals, would result in a loss for the quarter.