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Subprime Storm Strengthens – Mortgage Industry Insider from MortgageDaily.com

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RISMEDIA, March 6, 2007-As federal regulators proposed changes to subprime lending, New Century Financial Corp. disclosed it is the subject of a criminal inquiry and Fremont General Corp. disclosed a cease and desist order and said it will exit subprime lending, according to http://www.MortgageDaily.com.

A group of federal regulatory agencies, including the Federal Reserve, the FDIC and OTS, released Friday a Statement on Subprime Mortgage Lending. They are seeking comments about proposed subprime lending practices.

Subprime products causing concern include ARMs with "teaser" rates, mortgages with substantial prepayment penalties and stated income loans, according to the statement.

But mortgage bankers say the proposed changes will leave many potential borrowers without mortgage options.

A letter received from the U.S. Attorney's Office by New Century Financial Corp. Wednesday indicates the government is conducting a criminal inquiry, a 10-K filed with the SEC Friday said. At issue is trading in the company's securities as well as errors in the accounting of the allowance for repurchase losses.

New Century also disclosed it would file its annual report late as a result of its financial restatement for the first through third quarters 2006.

A proposed cease and desist order was received by Fremont General Corp. from the FDIC on Feb. 27, according to an announcement Friday.

The order called for Fremont to "make a variety of changes designed to restrict the level of lending in its subprime residential mortgage business," the statement said.

Citing the current legislative, regulatory and market environment, Fremont said it would exit residential mortgage lending.

Now is the time to "take profits" from subprime mortgage bonds, Lehman Brothers Holdings Inc. said in a research note.

"We expect negative headlines about ratings volatility, originator profitability, and housing fundamentals to continue," a Lehman analyst said. "While early-stage delinquencies have increased in the prime sectors similar to subprime, the magnitude of the surge is nowhere close to subprime levels."

For more information, visit http://www.mortgagedaily.com.

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