Sub Prime Clobbered in 1st quarter

By Paul Muolo
WASHINGTON -- Mortgage bankers funded just $88 billion in subprime residential loans during the first quarter with dozens of shops failing and concerns about credit quality -- and delinquencies -- taking their toll on the sector.
According to exclusive survey figures compiled by National Mortgage News and the Quarterly Data Report, subprime accounted for just 12% of all loans originated in the U.S., compared to a high of 24% in 2005.
The last time subprime's quarterly share was this low came in third quarter of 2003 when A- to D accounted for 9.2% of industry-wide production.
Since December, about 80 subprime-related shops and platforms have closed, according to a tally by this newspaper.
In the fourth quarter mortgage bankers funded $152 billion in subprime loans. During all of last year, lenders originated $665 billion in A- to D credits, a 16% decline from the record of 2005.
Among the top 20 funders in the fourth quarter of last year -- before the market truly began to crater -- three are now bankrupt (New Century Financial Corp., Mortgage Lenders Network, and ResMAE) with six others currently in the process of being sold or considering bids.
One other -- BNC Mortgage of Irvine, Calif. -- is being merged into an affiliate, Aurora Loan Services of Colorado. Both lenders are owned by Wall Street giant Lehman Brothers.
In the first quarter of 2007 seven of the nation's top 10 subprime funders experienced declines in production compared to the same quarter last year.
Fremont Investment & Loan suffered the steepest production decline (-59%), followed by WMC Mortgage (-50%), and HSBC Finance (-48%). FI&L is in the process of being sold. In recent months WMC has slashed its workforce by more than 50%, and HSBC has shut production channels and laid off workers.
Some firms have reported improved pricing in the secondary market for subprime loans, but few executives interviewed by NMN in recent weeks believe the current crisis is close to being over.
Also, two Bear Stearns managed hedge funds that invested in subprime assets are in danger of being liquidated after not meeting margin calls for more capital.
One executive, requesting anonymity, who recently sold his subprime shop said, "Come talk to me next summer. Maybe by then this mess will be half over."