Mortgage rate freeze spurs Countrywide, Thornburg, NovaStar; Deal comes too late for Delta Financial

By Evan Weinberger

New York, Dec. 6 - Countrywide Financial Corp. and NovaStar Financial Inc. led the way in the mortgage sector as president George W. Bush formally announced the plan to freeze rates on subprime mortgages for five years for some homeowners and provide refinancing assistance for others Thursday. The deal could reach up to 1.2 million people, Bush said.

The plan will freeze subprime mortgage rates - typically issued between 7% and 8% - at the low introductory (or teaser, as the industry jargon goes) rates. Subprime mortgages issued two to three years ago were set to jump to around 11% interest in the coming months.

Housing market watchers feared that up to 2 million families faced foreclosure.

The deal was put together by Treasury secretary Henry Paulson and representatives of mortgage brokers and banks.

"We should not bail out lenders, real estate speculators or those [who] made the reckless decision to buy a home they knew they could never afford," Bush said at the White House after meeting with mortgage industry leaders. "But there are some responsible homeowners who could avoid foreclosure with some assistance."

The rate freeze will only apply to people living in the homes on which they have the mortgage and who have never missed a payment at the lower rate.

Other homeowners will have the opportunity to get help refinancing their mortgages from their lenders and to move into loans backed by the Federal Housing Administration.

Subprime mortgage holders will have to ask for assistance and check on their qualifications. Thousands of homeowners who qualify have been sent letters advising them of their options. Others can find out if they qualify by calling 888 995-HOPE.

The Federal Reserve is also expected to announce tightened lending standards later in the month.

The deal was announced on the same day that the Mortgage Bankers Association announced that the rate of mortgages entering the foreclosure process moved up to an all-time high of 0.78% in the third quarter.

"The plan is just another step, combined with Fed rate cuts that in time will cause these stocks, bonds to recover," a buyside trader said.

Many of the stocks did just that.

Calabasas, Calif.-based Countrywide, America's largest home lender, saw its stock surge.

Countrywide stock (NYSE: CFC) climbed $1.68, or 16.12%, to close at $12.10.

Kansas City, Mo.-based subprime lender NovaStar, which has been teetering on bankruptcy, was already on the upswing prior to the deal's announcement on word that Wachovia was giving it a reprieve on some short-term debt.

The mortgage deal only sped up that rush.

NovaStar stock NYSE: NFI) skyrocketed 60 cents, or 24.19%, to $3.08.

Other habitually downtrodden stocks continued their rallies Thursday. San Francisco-based Luminent Mortgage Capital Inc.'s (NYSE: LUM) stock moved up 5 cents, or 4.55%, to $1.15.

Santa Fe, N.M.-based Thornburg Mortgage Inc. stock (NYSE: TMA) leaped 54 cents, or 5.21%, to $10.91.

Washington-based government secured mortgage backers Fannie Mae and Freddie Mac also jumped.

Fannie (NYSE: FNM) moved up $2.61, or 7.22%, to $38.74.

Freddie (NYSE: FRE) added $2.43, or 7.01%, to $37.10.

The mortgage deal helped spur an overall market rally.

The Dow Jones Industrial Average leaped 174.93 points, or 1.30%, to close at 13,619.89.

The Nasdaq stretched 42.67 points, or 1.60%, for a 2,709.03 close.

And the Standard & Poor's 500 moved up 22.33 points, or 1.50%, to close at 1,507.34.

Deal too late for Delta

The subprime mortgage deal came in too late for Woodbury, N.Y.-based subprime lender Delta Financial Corp.

After failing to find anyone to buy $500 million worth of its mortgages, Delta no longer expects to complete a deal where an affiliate of major shareholder Angelo, Gordon & Co. would buy three-year, 10% senior unsecured notes and receive 40 million new shares of common stock. That deal would have taken Angelo, Gordon's stake in the company up to 61%.

So Delta announced that it would file for bankruptcy protection Thursday.

Delta stock (Nasdaq: DFC) crumbled $1.51, or 88.88%, to around 19 cents on the day.

IndyMac troubles continue

Pasadena, Calif.-based IndyMac Bancorp Inc., a mortgage lender and thrift bank, watched its stock tumble Thursday after it said in a Securities and Exchange Commission filing that it was searching for ways to raise capital.

Among the options floated by IndyMac were selling convertible debt or preferred stock in a private placement, as well as possibly cost cutting measures or slashing its dividend.

In the filing, IndyMac chief executive officer said he expected the company to reach "modest profitability" by the second half of 2008.

The announcement didn't assuage investors, as IndyMac stock (NYSE: IMB) tumbled 70 cents, or 8%, to $8.05.

MBIA up on capital announcement

Armonk, N.Y.-based loan guarantor MBIA Inc. said Thursday that it was making plans to raise capital if ratings agencies say it needs to set aside cash to maintain its critical AAA rating.

Moody's Investors Service raised a caution flag about capital positions for bond insurers in general Wednesday.

"The company believes that maintaining a strong balance sheet and an adequate capital cushion is prudent," MBIA said in a statement. "Therefore, the company has been pursuing capital contingency plans, even in the absence of any immediate rating agency requirements."

Following a 16% drop Wednesday, MBIA stock (NYSE: MBI) raced to a gain of $2.42, or 8.83%, for a close at $29.84.

Tribune up on loan payment

The action wasn't all in the mortgage sector Thursday. Tribune Co., the Chicago-based media company, announced that it would use $500 million in existing cash to reduce borrowings on its existing bridge loan to $1.6 billion from $2.1 billion. The loan was taken out as part of Tribune's move to go private

Tribune also announced that it would challenge a Federal Communications Commission ruling restricting the company's right to own newspapers and television stations in the same media market.

Tribune stock (NYSE: TRB) took a ride on the up escalator Thursday on the debt reduction news. The stock added $2.31, or 7.78%, for a close at an even $32.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.