TheStreet.com Ratings: Real Estate Funds

Real estate news By Kevin Baker
3/10/2007 10:13 AM EST

On March 6, the National Association of Realtors announced that pending home sales for January fell 4.1% from December and 8.0% from a year ago. The pending sales are a leading indicator or predictor of what the actual home sales of existing homes may be in the next few months.

The region taking the worst hit was the South, with contract signings down 11.7%, the worst monthly decline since February 2001. Pending home sales in the South are at their lowest level since January 2004. In lending, the worst loans are made in the best of times. TheStreet.com Ratings' new senior bank analyst, Philip van Doorn, explains that "during the real-estate boom, mortgage companies lowered credit standards, giving loans to some borrowers with no income verification and no money down." He adds that "these subprime loans to borrowers with low credit scores may lead to record foreclosures."

The banks that financed the mortgage companies are now forcing the mortgage companies to buy back some of these bad loans and cutting off further credit for new lending. Three subprime lenders, including Mortgage Lenders Network USA, already are in Chapter 11 bankruptcy for reorganization. The second-largest subprime lender, New Century Financial (NEW - Cramer's Take - Stockpickr - Rating), plunged 75.6% for the five trading days ending March 8, as it was forced to buy back loans it had previously sold. The company's lines of credit dried up, new loan activity ceased, and 4% of its workforce has been fired.

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