Subprime Lender Looks Cheap!!!

[DesertCat]

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So what about shorting sub prime lenders? Is there any opportunity in that?

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Most of these guys are heavily shorted already. You might have trouble finding borrow. And you need to understand what they should really be worth. If Novastar is really worth $15, shorting it at $17 is just an exercise in futility.

The problem with these companies is their financials are very complicated. Once again before you make a bet you need to take the time to read their financials and model all of them. Even if you don't find an opportunity, it wouldn't be a total waste as you'd learn a great deal about an important area of financial companies, securitization.

But if you just want to close your eyes and pick one (which is basically what you are doing if you rely on misleading book values and PE ratios), I'd recommend taking the money up to $100-$200NL and taking a shot there instead. You actually might have a tiny edge at $100-$200, instead of the pure coin flip you'd be getting here.

[squiffy]

I was thinking about buying puts on MTG which shot up to 70 on news it was buying out some other insurer or lender. I wasn't sure the pop up was justified.

[Girchuck]

Take a look at this site:
link
It lists all the subprime lenders that discontinued operation since January. Their number is growing

[laserboy]

I wanted to post about how I told everyone to short these losers two years ago and how I'm a stock market genius, but it took me a week to figure out how to use the search function to find my old post. Here it is anyway:

Link

I live in the same area as these guys, Orange County, the Pump and Dump Mortgage Capitol of the world. They will be out of business in a few years and their mortgage lending professionals will be back working at McDonald's to keep up with their BMW payments.

[KDuff]

NFI is off 38% today after posting a net loss. There's no need to get fancy: stay away from the subprime lenders.

[PaperClip]

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NFI is off 38% today after posting a net loss. There's no need to get fancy: stay away from the subprime lenders.

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[RollingRockMike]

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Theoretically they are off the hook for those potential mortgages after securitizing, but I'm not sure it's true (the wall street journal hinted today that some of the securitizers have been forced to cough up additional monies when ABS's have extra losses).


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I must have read the same article. I found it interesting so I asked my parents, who are both in the secondary mortgage business. They said that the contracts have clauses to require loan buybacks in the case of applicants lying (i.e. fraud, which many of these are). They said there are a few other common clauses, but they are basically all due to the fault of the loan originator.

Hence, if one insists on entering this market, maybe you can do some research as to the strength of the validity checking of their underwriters, etc. I don't know why anyone would enter such a risky industry with your hard earned dollars, but this might be a good place to hedge by buying a few you like and shorting a few you don't.

Mike

[latefordinner]

NEW is now down to $10.92.

[DesertCat]

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NEW YORK (MarketWatch) -- Several analysts agreed Monday that New Century Financial Corp., one of the nation's largest subprime mortgage lenders, likely faces liquidation or bankruptcy following revelations that it's under criminal investigation and in violation of debt covenants with several lenders.
"New Century is more likely to enter the death spiral we had feared, as filing delays, financial difficulties, likely restricted liquidity and regulatory/criminal investigations could conspire to limit its options outside of bankruptcy," Merrill Lynch analysts wrote early Monday.
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New Century's shares fell 58% to $6.15 in morning trades Monday, after dropping in Friday's session as well


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