The shakeout in the business of risky mortgages intensified Tuesday as Freddie Mac swore off buying certain common but foreclosure-prone loans and Ameriquest Mortgage Co., which has struggled to find a buyer, said a potential partner might come to its aid.
Lenders to shaky borrowers have been in turmoil this year, and the tremors probably will be felt by homeowners seeking to refinance their high-risk mortgages.
In another indication of stress, Santa Monica's Fremont General Corp., which has been a major lender to borrowers with poor credit scores and no down payments, said late Tuesday that it would not release its fourth-quarter financial results today as planned.
Fremont General, which has beefed up loss reserves and backed away from its riskiest lending practices over the last year, said it would explain its decision later in a filing with securities regulators.
Several other of these sub-prime lenders have seen their shares hammered after disclosing heavy losses this month, including New Century Financial Corp. of Irvine, whose stock fell 36% in a day after it said it would have to restate its earnings for all of last year. Others have filed for bankruptcy protection, including Ownit Mortgage Solutions of Agoura Hills and ResMae Mortgage Corp. of Brea. And a host of mortgage companies, including No. 1 lender Countrywide Financial Corp., have announced layoffs.
As home prices soften and lenders adopt more stringent standards, consumers who once used "serial refinancings" to extract cash and get new low "teaser" rates are finding themselves stuck with loan payments that will soon shoot higher. With foreclosure rates on the rise, some analysts warn that woes in the sub-prime industry could spread to the prime market and affect the entire economy.
"More people who already own their homes and can't refinance are likely to lose them," said analyst Zach Gast, who has studied the lending scene for the Center for Financial Research and Analysis, a forensic accounting and due diligence firm.
"Think how that's going to ripple through the economy," he said. "It could really affect home prices."
The effects of mortgage layoffs already are being seen in employment data for Southern California. In Orange County, ground zero for the sub-prime industry, year-over-year figures for financial services employment showed job losses beginning last summer for the first time since late 1999 through mid-2000, after the last big industry retrenchment.
