Sub-Prime Lenders Get Crushed. Is Economy Set to Implode?


crash.JPGMany of the Publicly Traded Sub-Prime Lenders Got Decimated Today

New Century Financial Corp. (NEW) is getting crushed today, trading down 60% on the NYSE. New Century said it had received waivers for being out of compliance with debt covenants from six of 11 lenders, but deals with others remain uncertain. (Marketwatch)

Fremont General Corp.’s (FMT) plunged after the company said it plans to sell its subprime lending business after it received a proposed cease-and-desist order from the Federal Deposit Insurance Corporation.

Other companies getting hit include Accredited Home Lenders (LEND) down 21.4% and NovaStar Financial Inc. (NFI) down 29.6%.

Why Is All of This Happening??

It seems that many of the sub-prime banks were so busy trying to cash-in on the housing bubble (and contributing to it) that they forgot that it is their responsibility to maintain some set of standards. They were throwing money at anyone who wanted it, thinking that the bubble wouldn’t end.

Here’s your wake up call!!!

I don’t actually blame these companies as much as I blame the regulators. Like anyone else, these guys were trying to make a buck. If the government was doing its job, we’d have a more stringent set of rules on the books to regulate the industry. Like everyone else, the government was too busy boasting about how strong our economy was as the housing market climbed. As people make more money with their homes, they have more money to spend on other items, and naturally, the economy benefits. They got dizzy with success and forgot about the consumer, as usual.

Sadly, this was just an illusion. Yes, many people made a lot of money in housing over the past few years, but is our economy any stronger because of it? With the Iraq war topping 5.8 billion a month, our national Debt approaching $9 trillion, and an administration that refuses to slow down on spending or to roll back tax cuts (or find other revenue sources), our economy is not in a good place. There are a lot of people out there who can’t afford the homes they live in. Foreclosures are rampant across the country. Health care is climbing faster then college tuition (it might be the other way around), and the middle class is suffering along with anyone who is not rich.

We now rely on foreign investment to support our economy. “Now, approximately half of this country’s debt is held outside the United States, primarily by China, Japan and Southeast Asian nations.” (MSN)

How long can it last??

Is anyone going to step up and do something?

About Author

Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.


  1. I don’t think the economy is headed in the right direction either — don’t know if you saw 60 Minutes this week, but there was a story about how our country is in danger of being bankrupt by 2040 (which isn’t really that far away). Our financial future is not looking so bright.

  2. I am almost worn out from the calls and sad emails I get from home owners who contact me because they are going to lose their home. Most have a story that involves some kind of mortgage fraud. Often these people don’t understadn the foreclosure process and call when it is too late. I have toured mnay bank owned properties with my buyers and see first hand how it affects families. We find children’s toys and blankets in vacant homes that need repair. Yes this is about the economy but it is the human side of it that is getting to me.

  3. I see what is happening in the US right now and look at other markets that are still running hot. The US market is a pretty good indicator of where things are heading for a few other countries like Australia for example. Try and get a rental in many areas of Australia and it is like going to “Auction”
    Yet the bubble has not burst yet, the AU market has slowed but it is not a disaster – I think that time might just come soon.

  4. “I don’t actually blame these companies as much as I blame the regulators. Like anyone else, these guys were trying to make a buck. If the government was doing its job, we’d have a more stringent set of rules on the books to regulate the industry.”


    If the government did step up to do something you would be screaming stop stop, big brother is at it again. I highly doubt the USA would go bankrupt in 2040. If that happened then every other country would be in the same boat. If there is any thing that will kill the USA it’s the trash that is you and me inside that can’t take care of ourselves. Then when things get hard we scream for big brother to help us.

    well I hope this doesn’t get into a political rant 🙂 The bottom line is that you have uneducated people trying to make educated decisions. Our school system is what needs revised first.

  5. Pingback: Shock and Awe: The Collapse of Housing and Sanity | Real Estate Investing for Real Blog

  6. I’m not in the US but from what I’ve read I can’t see it being that bad. House prices haven’t dropped by much and historically speaking, they’ll pick back up abeit at a slower price. People just need to realign their expectations and stop thinking that they can flip their houses within a year and make 20 – 30%. Houses are long term investments.

    As for Australia, the property market is in overdrive at the moment and with the strong aussie dollar and keen international interest, I don’t see this fading anytime soon. It’s all buy buy buy here. 🙂

    We Finance Loans

  7. The innocent suffer with the guilty. I am not looking for sympathy. I just don’t want my tax dollars to go to a bail-out of the greedy and the stupid, both individuals and corporations.
    Here’s my situation:
    In 2005 I bought a house. The mortgage lenders tried to push me into an interest-only or subprime so that I could ‘buy more house’; I bought what I could afford for 10% down with a 30-year fixed mortgage at 6.35%. Now I can’t refinance for the lower 5.25% rates because MY HOUSE IS WORTH LESS THAN WHAT I PAID FOR IT!
    I’ve had to relocate to another state for work. My company isn’t covering my mortgage. No one’s buying. After 1 year I have a renter for 2/3’s of my mortgage payment. I can’t refinance.
    No one’s bailing me out!
    Don’t bail-out the greedy idiots who bought more than they can afford with my tax money!
    Don’t bail out Wall Street [Bear-Stearns] with my tax money!
    Don’t bail-out the banks and mortgage companies with my tax money!
    Don’t use my tax money to bail-out the stupid and the greedy!
    The federal government isn’t Santa Claus for individuals (like the Democrats believe) or for the corporations (like the Republican’s believe).
    Why won’t any of our leaders stand up for hard-working, honest, middle-class American’s like me?

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