Glance over at Wall Street and you’ll find some troubling indications on the health of some of the lenders. We know that foreclosures are on the rise and that there are looming concerns about interest rates, but seems that the analysts are taking notice.
New Century Financial Corp (NEW) took a big hit late last week on the back of news of an unexpected fourth quarter loss .
New Century Financial focuses on sub-prime lending, the market that is taking a disproportionate share of the blow being dealt to financial institutions by rising default levels. Sub-prime lenders get a lot of scrutiny from watchdog groups and consumer advocacy organizations - and rightly so; this is a market that is prone to abuse. But inarguably sub-prime lenders provide a service to the real estate community by offering options to potential homeowners who otherwise would be unable to purchase a home. Look for liquidity to be negatively impacted as these companies get clobbered – which will impact homeowners as they try to refinance adjustable rate mortgages that they entered into back in rosier days.
So what does it mean to me? Well a lot of real estate investors have jumped into risk/complicated loans during the easy-money days, with they expectation that they would either a) sell the property or b) refinance in the future. Well refinancing will get harder if the current trend continues; they very companies that started the trends in sub-prime lending and exotic mortgages are on the brink of leading the market towards tightening lending standards. Take a look at your situation and decide whether or not you need to take action.
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