A lot has happened to the subprime market and the players in it since the virtual meltdown two weeks ago. This does not purport to be a definitive roundup of activities in the last week, there has been a lot going on.

New Century Financial continues its downhill spiral. While it voluntarily stopped accepting new mortgage applications (after most of its warehouse lines were closed) several weeks ago, it has been out and out forbidden to write mortgages by California, Ohio, and several other states. One of its major creditors, Morgan Stanley, will accept preliminary bids on $2.48 billion of New Century loans which the bank holds as collateral on March 29 in an attempt to recoup some of its lending loses.



Conversely, some subprime lenders are rallying. Accredited Home Lenders has secured bridge financing from Farallon Capital Management, a huge hedge fund firm. The five year loan will give Accredited time to secure new warehouse lines or to sell its lending operations and may signal a move by hedge funds into assuming risky loan portfolios. Frontier Financial has sold some of its loans to buy time to sell off its mortgage business.

Some experts speculate that the next few shoes will drop as investors begin to review their loan portfolios looking for excessive delinquencies. Most loan purchase contracts require the underwriting firm to repurchase loans with defaults or possible defaults above a certain level and some subprime lenders may not have the available capitol to redeem the bad mortgages.

Congress, sensing impending problems, has jumped into the fray and, what else? Multiple hearings have been held and others are scheduled.

The Senate Banking, Housing, and Urban Affairs Committee held two hearings on the subprime situation within the last week. At the first one on Thursday, March 22 testimony was heard from representatives of the Office of Comptroller of the Currency, The Federal Deposit Insurance Corporation, mortgage lenders such as Countrywide and HSBC Financial, consumers and, representing minority consumers, The National Council of La Raza. At the second hearing held on Tuesday, March 27 the Federal Reserve Board was expected to testify that, while the subprime market was rallying, problems might be expected to continue for several years.

Two different House committees are also conducting hearings; The House Financial Services Subcommittee on Financial Institutions and Consumer Credit and the Subcommittee on Domestic Policy.

Some of the testimony at these hearings was interesting and at least one smoldering dispute that we reported on earlier between the National Association of Mortgage Brokers and the Conference of State Bank Supervisors (CSBS) was stoked into flames. We will report on some of the testimony at these various hearings later this week.

In other relevant news, the Case-Shiller price indexes for January were released on Tuesday by Standard & Poors and MacroMarkets LLC. The 10 city index was down 0.7 percent in the past year, representing the first year-over-year negative reading in 11 years. The 20-city index was down 0.2 percent for the same period, the first time it has ever registered a negative number. Robert Shiller, MacroMarkets' chief economists said that these declines were a "good indicator of the dire state of the U.S. residential real estate market."

Detroit and Boston led the downward trend with price declines of 6.9 percent and 5.6 percent respectively. Seattle prices increased 11.1 percent and Portland, Oregon was up 8.7 percent.