News of a 14 million dollar loss rocked the price of NovaStar Financials stock yesterday. The market recognized the exposure to sub prime loans that are in a delinquent status or in foreclosure. The number of these loans is expected to rise in the near term as housing prices have remained stable and the ARMs are resetting at a higher rate.
Shares of NovaStar Financial, which makes loans to people with weak credit, fell almost 43 percent yesterday after the company announced a surprise loss of $14.4 million for the fourth quarter and told investors that it might not make enough money to pay dividends for the next four years.
The announcement, which highlighted the fact that more home loans made last year were delinquent than mortgages from 2005 and earlier, echoed reports issued earlier this month by New Century Financial and HSBC Finance, the American mortgage division of the global banking giant.
Though each lender is suffering from a variety of individual ills, rising default rates among loans made to people with spotty, or subprime, credit appear to be the central problem for the industry.
A major indicator of the trouble in the subprime market is the early-payment default rate, which measures the portion of borrowers who fall behind on their house payments within the first few months of taking a loan. via the New York Times
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Subprime lenders are falling like flies.
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