| Defaults fluster economy
They're being blamed for a variety of problems this week, including the Dow's tumble on Tuesday and the record number of home foreclosures announced the same day. During a speech Thursday in Boca Raton, former Federal Reserve Chairman Alan Greenspan said that defaults on subprime mortgages could negatively affect the broader economy if home prices continue to drop. Subprime loans, which carry higher interest rates, are made to people with poor credit ratings. Florida, which accounts for one-tenth of the country's subprime loans, could face more pain than most. "There's clearly some elements of a crisis," said Mark Vitner, Wachovia Corp.'s senior economist. What's the problem with subprime lenders? Some of the biggest, such as New Century Financial Corp., are facing serious financial problems.
New Century bankrupt as mortgage woes spread
High-risk mortgage lender New Century filed for bankruptcy and fired over half its work force on Monday as signs emerged the US housing crisis was spreading into better quality home loans. Rising defaults on variable-rate mortgages have pinched lenders who made loans to borrowers with spotty credit histories, leaving many in financial trouble. Until now, such issues had been mostly contained to subprime, the riskiest category of mortgages. But now lenders in a class of loans known as Alt-As, which sit in a gray area between risk and safety, are also ringing alarm bells. "We are only at the very beginning of the problems facing subprime," said Brad Hintz, analyst at Sanford C Bernstein. "This liquidity crisis is continuing in the marketplace." M&T Bank Corp, whose largest outside shareholder is Warren Buffett's Berkshire Hathaway, said on Friday that its mortgage investments would hurt first-quarter profit.
Lenders scramble to head off foreclosures
NEW YORK As home foreclosures mount, mortgage companies are knocking on doors, sending letters and making phone calls with a simple message for struggling homeowners: They'd rather modify your loan than foreclose. EMC Mortgage Corp., which has a $78 billion loan portfolio that includes subprime loans made to homeowners with weak credit, this week launched a 50-person team it calls "the Mod Squad." Members will spend an unlimited time on the phone with troubled borrowers, sifting through their bills to compute a workable monthly payment. In an industry that often rewards workers for getting off the phone quickly, the team is preparing to speak to just three people a day. "You can't just run this like a call center; it needs to be run like a counseling center," said John Vella, president and CEO of EMC.
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