Key Ratings of Bad Credit Mortgage Lenders May Be Cut
New Century Financial and Ameriquest Mortgage Co., both based in Orange County, Calif., are among five subprime (or bad credit mortgage) lenders that may have their ratings cut on the part of their businesses that collect home loan payments amid a rise in delinquencies.
Moody’s Investors Service said Wednesday that it would review the so-called servicing ratings for affiliates or branches of New Century, Ameriquest, NovaStar Financial Inc., Accredited Home Lenders Holdings Co. and Winter Group. Moody’s said it anticipated lowering the ratings by one level.
More than 20 bad credit mortgage loan providers have shut down, scaled back or been sold in the last five months amid rising late home loan payments and lower prices for new loans.
Others, including San Diego-based Accredited Home and NovaStar Financial of Kansas City, Mo., this month reported quarterly losses. New Century said that it expects to post a loss.
Moody’s said its review was “prompted by the heightened level of volatility in the bad credit mortgage market.” The companies face “lower profitability as well as potentially an increased level of liquidity risk given current market conditions,” it said in a statement.
The ratings affect how much protection for investors ratings firms require when mortgages are packaged into bonds, and the reviews of the securities’ credit worthiness. Weaker servicing operations at the five companies may hurt existing mortgage securities.
Subprime, or bad credit home loans, are made to U.S. borrowers with poor or limited credit histories or high debt burdens and typically carry rates that are at least 2-3 percentage points higher than safer prime loans.
By contrast, Alt-A mortgage loans are generally issued to borrowers with slightly better credit, but still not eligible for prime rates.
Although the servicing operations of the companies have not suffered yet, their “ability and willingness to continue to invest and maintain current resource levels” in the businesses are in doubt, Moody’s said.
SOURCE: Los Angeles Times