Sub Prime Mortgages

Shares of companies that make high-risk home loans took another nose dive Monday after analysts questioned whether a leading industry player, New Century Financial Corp. of Irvine, was headed for bankruptcy. New Century is "much closer to death spiral, if not already in it," analyst Kenneth Bruce of Merrill Lynch wrote in a note to clients. "Bankruptcy could prove to be the best way to preserve value." Shares of New Century plummeted $10.09, or 69%, to $4.

ShaRon Lewis is facing a 50% hike in the payment on her adjustable-rate mortgage next month. This week, she discovered she can't qualify for a new loan with payments that she could afford. And although she's willing to sell the West Hills home she's owned for two years, she has been told it won't fetch what she paid for it. "I have to laugh to keep from bawling," the 30-something Lewis said.

Investors have lost their appetite for bonds tied to high-risk mortgages but are holding tight to corporate "junk" bonds and other securities that also are viewed as speculative bets. That has calmed fears on Wall Street that the turmoil in the U.S. mortgage business would spread, domino-like, through markets worldwide.

An Irvine company that was the nation's largest independent provider of high-risk home loans skidded closer to bankruptcy Monday, stoking fears that the mortgage industry's woes could further damage a sluggish housing market. Easy-money loans from New Century Financial Corp. and other lenders specializing in borrowers with poor credit helped fuel the housing boom, swelling the ranks of homeowners with people who could not have qualified for mortgages in years past.

Oscar De Leon was washing his car a few weeks ago when he noticed a piece of paper stuck to the front door of the house across the street. He strolled over to check it out. "You are in default," the paper proclaimed. "Unless you take action to protect your property, it may be sold at a public sale." De Leon, who lives in the Riverside County town of Perris, knew this official notice of foreclosure was bad news.

Two struggling mortgage lenders were thrown financial lifelines Friday, a glimmer of hope for the battered industry. But analysts said the shrinking of the so-called sub-prime loan business was likely to continue. "This hasn't changed the operating fundamentals of the industry," said Bose George, an analyst at investment firm Keefe Bruyette & Woods in New York. San Diego-based Accredited Home Lenders Inc. said it sold $2.

The stock market proved again last week that it was vulnerable to bad news relating to U.S. sub-prime mortgage lenders. This week should give investors a clearer view of the housing market's health and whether it is stable enough to stave off an overflow of that sector's troubles into the wider economy.

The shakeout in the sub-prime lending industry continued Monday, with more people losing their jobs and a prominent lender losing its name on a baseball stadium. Fremont General Corp. of Santa Monica said it had told "significant numbers" of its 2,400 home-loan employees to expect pink slips in two months. Company officials declined to say how many employees would be dismissed. Fremont is the latest lender to announce layoffs in the sub-prime market, which targets people with dented credit.

The phones inside the Weld County public trustee's office ring insistently throughout the day, with questions from harried bank lenders and pleas from residents on the verge of losing their homes. After relating their particular case, some callers ask the agency, which manages the sale of foreclosed properties for this city on the edge of the Front Range, the same questions: Just how bad is the housing market here? How much worse can it get? The answers are usually grim.

As risky home loans soared in popularity in recent years, federal banking regulators were repeatedly warned that more borrowers were getting trapped in mortgages they could not afford. "Current regulations are insufficient to protect consumers," the California Reinvestment Coalition and other groups said in an August 2006 letter to Federal Reserve governors, who were considering tougher lending standards.