Prime (Not Subprime) Mortgage Lenders Ratings Cut

Discussion in 'Economics' started by ByLoSellHi, Mar 5, 2007.

  1. Lehman Cuts Prime Mortgage Lenders on Spillover From Subprime

    By Will Edwards

    March 5 (Bloomberg) --
    Lehman Brothers Holdings Inc. reduced its investment rating on U.S. mortgage companies including Countrywide Financial Corp. because a surge in loan defaults is showing evidence of spreading beyond the riskiest credits and the Federal Reserve hasn't cut borrowing rates.

    Lehman analyst Bruce Harting cut his recommendation for the so-called prime lenders to ``neutral'' from ``positive,'' and dropped Countrywide, the biggest U.S. mortgage lender, to ``equal weight'' from ``overweight.''

    Missed payments on mortgages to the riskiest borrowers are rising as declining home prices make it tougher to refinance adjustable-rate loans. New Century Financial Corp., the second- biggest U.S. subprime lender, revealed March 2 that it faces a criminal probe and may need credit-line extensions to remain in business. Fremont General Corp. said it's getting out of subprime lending.

    ``The rapid high-profile demise of the pure-play subprime lending industry has caused major, real dislocations in the market that should negatively impact the prime-oriented lenders' earnings over the course of 2007,'' Harting wrote in a research note to clients today.

    Harting said he expected the Fed to have cut short-term interest rates by now, sparking a wave of refinancing.

    Countrywide, based in Calabasas, California, last week disclosed in a regulatory filing that payments were late on almost 20 percent of the subprime loans it manages for clients.

    The company's shares fell to $34.68 in 9:15 a.m. trading before U.S. stock exchanges opened from a close March 2 of $37.02 on the New York Stock Exchange.
  2. Ratings changes happen after-the-fact, never before. It's "confirmation of the obvious". The big brokerages need time to short-sell the securities that they're going to downgrade.