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With stunning swiftness, the damage from the collapse of the subprime mortgage market is bleeding out to other parts of the economy. And that damage will explode on Monday as investors continue to flee the sector.
How so? Because late Friday afternoon, according to the Wall Street Journal [subscription required] two subprime lenders dropped several bombshells that have left them fighting for their lives:
- New Century Financial Corp. (NYSE:NEW), one of the largest subprime lenders, is facing a federal criminal inquiry into its accounting and trading in its securities. Furthermore, if NEW's lenders don't let it off the hook for meeting the terms of its lending contracts or it does not find new lenders, NEW stated that its auditors are likely to warn of "substantial doubt" over its ability to remain in business. Translation: NEW could go bankrupt very soon.
- Fremont General Corp. (NYSE:FMT) will stop making subprime residential loans and is negotiating to sell that business.
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