On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.
What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.
The analyst�s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn�t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.
Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending.
Investment manias are nothing new, of course. But the demise of this one has been broadly viewed as troubling, as it involves the nation�s $6.5 trillion mortgage securities market, which is larger even than the United States treasury market.
Already, more than two dozen mortgage lenders have failed or closed their doors, and shares of big companies in the mortgage industry have declined significantly. Delinquencies on loans made to less creditworthy borrowers � known as subprime mortgages � recently reached 12.6 percent. Some banks have reported rising problems among borrowers that were deemed more creditworthy as well.
The Bear Stearns analyst who upgraded New Century, Scott R. Coren, wrote in a research note that the company�s stock price reflected the risks in its industry, and that the downside risk was about $10 in a �rescue-sale scenario.� According to New Century, Bear Stearns is among the firms with a �longstanding� relationship financing its mortgage operation. Mr. Coren, through a spokeswoman, declined to comment.
Others who follow the industry have voiced more caution. Thomas A. Lawler, founder of Lawler Economic and Housing Consulting, said: �It�s not that the mortgage industry is collapsing, it�s just that the mortgage industry went wild and there are consequences of going wild.
WFC is going to take a dive.. as are all the Players in this Ponzi Shceme of no down Mortgages .. it reminds me of the Savings and Loans collapse of the late 1980's... It is a corrupt organization, to think that they would even think of suing someone who said so, is hillarious!!!!!!!!!! Truth is a complete Defense .. and Coach "K" and friends are to busy getting out before this Ponzi Scheme hits the Fan,
Remember when John Chambers said there was no problem and then CSCO had to come out of the denial stage and wipe its EPS off the books for about 4 years? CSCO and all the dotcom conmen sold as much equipment as possible to tons of bogus dotcom startup cashburners that never had a dime!
Same deal here with joints like WFC, where these types of bums are selling as many bogus loans as possible to cashburning fools that have no clue as to how to manage a sixpack and a trailer door..........same friggn deal here and the same meltdown, regardless, and WFC, like Citi, like BOA, like every mortgage pupmer already in default, you will all melt into the same pool of guilt!