A Difficult Stretch For Bad Credit Home Loan Companies

As we’ve discussed at length, it’s been a lousy couple of weeks (months) for home mortgage lenders serving people with sub-par or bad credit.

When more and more of their customers have fallen well behind on mortgage payments, subprime (or bad credit mortgage) lenders are forced to set aside millions of dollars to cover problem home loans.

Moreover, when their customers start missing mortgage payments en masse, they’re forced to start lowering their future profit projections. Which doesn’t exactly give stockholders a lot of confidence.

Industry observers say the decline was almost guaranteed by a combination of customers with shaky finances, exotic terms of home loans, rising mortgage rates and stagnant home prices.

And that’s not all. They say a continued decline in the bad credit home loan sector could endanger the very financing that gives the industry its lifeblood.

“This business is losing money at the industry level today, which will likely lead to capital being pulled away from the business,” said Merrill Lynch analyst Kenneth Bruce.

NovaStar Financial last week surprised many in the industry, reporting a staggering $14 million fourth-quarter loss and setting aside $45 million for delinquent home mortgage loans.

In addition, the investment giant made headlines by stating that it may not have significant taxable earnings for the next five years.

The Kansas City-based investment company’s news came a week after two other major subprime mortgage lenders, HSBC Holdings PLC and New Century Financial Inc., also reported financial problems.

Those mortgage lenders’ troubles have been brought on as more of their customers have fallen 30 days or more behind on mortgage payments.

SOURCE: News-Leader