Five sub-prime lenders may see ratings cut

From Bloomberg News

New Century Financial Corp. and Ameriquest Mortgage Co., both based in Orange County, are among five sub-prime mortgage lenders that may have the ratings cut on the part of their businesses that collect home loan payments amid a rise in delinquencies, Moody’s Investors Service said Wednesday.

Moody’s said it would review the so-called servicer ratings for affiliates or units of New Century, Ameriquest, NovaStar Financial Inc., Accredited Home Lenders Holdings Co. and Winter Group. New York-based Moody’s said it anticipated lowering the ratings by no more than one level.

More than 20 sub-prime lenders have shut down, scaled back or been sold in the last five months amid rising late payments and lower prices for new loans. Others, including San Diego-based Accredited Home and NovaStar Financial of Kansas City, Mo., this month reported quarterly losses.

New Century has said it expects to post a loss. Shares of the Irvine-based lender fell $1.22 to $17.55. Orange-based Ameriquest is privately held.


Moody’s said its review was “prompted by the heightened level of volatility in the sub-prime mortgage market.” The companies face “lower profitability as well as potentially an increased level of liquidity risk given current market conditions,” it said in a statement.

Servicer ratings affect how much protection for investors ratings firms require when mortgages are packaged into bonds, and their reviews of the securities’ creditworthiness. Weaker servicing operations at the five companies may hurt existing securities, Moody’s said.

Sub-prime mortgages are made to borrowers with poor or limited credit histories or high debt burdens and typically carry rates that are at least 2 or 3 percentage points higher than safer prime loans.

Although the servicing operations of the companies have not suffered yet, their “ability and willingness to continue to invest and maintain current resource levels” in the businesses are in doubt, Moody’s said.