Loan Defaults

Video game maker Midway Games is fighting for its survival after warning this week that it could default on $240 million in debt. Chicago-based Midway disclosed in a regulatory filing Thursday that it had hired Lazard Ltd. to evaluate "strategic and financial alternatives." Midway spokesman Geoffrey Mogilner declined to elaborate on those options but said the company had sought Lazard's advisory services in advance of a looming debt payment in April. Midway hired Lazard on Nov.

The number of Californians defaulting on their mortgage loans is rising rapidly, according to figures released Tuesday, providing striking evidence that more people are at risk of losing their homes. Default notices jumped 145% in the last three months of 2006, accelerating a trend that began in late 2005 as home sales started to cool. It was the largest number of default notices in any three-month period since 1998. Analysts said the increase was not worrisome -- yet.

There's more trouble in the mortgage lending market -- and that could mean problems for higher-risk borrowers who want to refinance their home loans. An independent Orange County lender and Europe's largest bank both spooked Wall Street on Thursday by reporting huge losses on "sub-prime" mortgages to borrowers with bad credit, high debt loads or other risk factors. The bad news from Irvine's New Century Financial Corp.

As more Americans default on home loans, federal regulators and members of Congress are looking to place new restrictions on mortgages for people with shaky credit, a move that could make it harder for many people to buy homes or refinance their mortgages. Government officials are weighing several proposals to address problems that have rattled the mortgage lending industry -- heavily concentrated in Southern California -- and left growing numbers of people in homes they cannot afford.

The Federal Reserve said Tuesday that the delinquency rate on banks' residential real estate loans climbed last quarter to the highest level in four years. The share of the loans on which payments were at least 30 days overdue rose to 2.11%, the highest since the fourth quarter of 2002, from 1.72% the previous three months, according to data posted on the Fed's website. The data aren't adjusted for seasonal patterns.

Countrywide Financial Corp., the biggest U.S. mortgage lender, said payments were late on almost 20% of the sub-prime loans it manages for clients. Delinquencies of 30 days or more on "nonprime" loans, or those to borrowers whose credit ratings fell short of the highest criteria, widened to 19% as of Dec. 31 from 15% a year earlier, Countrywide said.

General Motors Corp. may join the list of victims of the surge in sub-prime mortgage defaults. GM may take a charge of almost $1 billion to cover bad mortgage loans made by its former home-lending unit, Residential Capital, said Lehman Bros. analyst Brian Johnson. Residential Capital relies on loans to people with high debt burdens or poor or limited credit records for more than three-quarters, or $57 billion, of its loan portfolio, Johnson wrote in a recent report.

The woes of sub-prime lenders, several with offices in Orange County, may make a dent in the county's hot office market, some analysts say. Direct vacancy in Orange County -- not including sublease space -- is a low 7%, but new buildings expected to be completed this year could push vacancy up an additional 4 percentage points, said analyst Michael Knott of Green Street Advisors.

Economists have been arguing for weeks about the crisis in mortgage lending to risky borrowers and whether it could turn the entire economy sour. Wall Street cast its vote Tuesday: It looks like trouble. The Dow Jones industrial average sank almost 250 points after reports showed rising mortgage delinquencies and weak retail sales, suggesting that the woes of sub-prime lenders might be spilling into the broader economy.

General Motors Corp. expects home loan defaults to drag down its financial results this year. One of GM's major assets is its 49% interest in GMAC Financial Services. A wholly owned subsidiary until last November, GMAC is a major provider of sub-prime loans to borrowers with poor credit. In a long-delayed fourth-quarter financial report Wednesday, GM said that GMAC's home mortgage unit lost $651 million in the quarter because of soured loans.