Investors in selected companies in the battered real estate sector saw a little relief on Mar. 7. Among the groups posting gains: U.S. mortgage lenders, as investors hunted for bargains following the recent turmoil among those who lend to people with bad credit.
Subprime lenders had swooned on Monday, Mar. 5, amid fears that major industry player New Century Financial (NEW) faces the threat of bankruptcy (see BusinessWeek.com, 3/5/07, "Another Stumble for Subprime Lenders"). Fremont General (FMT) also announced late Mar. 2 that it's going to exit subprime real estate lending and is in talks to sell the business.
But Fremont General shares surged 25.8% to $8.53 per share on the New York Stock Exchange March 7, after Bloomberg reported that the California-based lender told employees it is talking with as many as six suitors interested in buying its residential mortgage business.
Some tried to distance themselves from the mess. Toll Brothers' CEO Robert Toll said rising default rates in the subprime market won't have "too great" of an impact on his business selling luxury homes, according to a Reuters report about his presentation at Citigroup's Global Industrial Manufacturing Conference on Mar. 7. Toll also promised to "burn off" excess inventory of unsold homes in many markets within four or five months, after having managed to run inventory at half the pace it had been three or four months ago. After the news, Toll's stock gained 1.5% to $29.24 per share on the NYSE.
Toll wasn't the only one. IndyMac Bancorp (NDE) said it doesn't expect its subprime business to bleed into the higher quality mortgage categories, Action Economics reported. IndyMac gained 5.1% to $31.18 per share on the NYSE.
Even the companies that had previously taken took the worst shellacking from investors gained a little ground. New Century was up 2.8% to $5.16 per share on the NYSE and NovaStar Financial (NFI) surged 12.4% to $5.09 per share, after both companies' shares had plummeted on March 5. On Feb. 21, NovaStar reported bad news including the possibility that the company will have no taxable income through 2011 (see BusinessWeek.com, 2/22/07, "A Painful Hiss from the Subprime Balloon").