MAJOR PAPERS:

• John Meriwether, whose Long-Term Capital Management lost $4B in 1998, has new troubles with JWN Partners, as his Meriwether's largest hedge fund has fallen 28%, and another market fund is also down. Investors have until Monday to ask to pull out their investment, the Wall Street Journal reported.
• The Wall Street Journal also reported that failed mortgage provider New Century Financial might be able to get back some of its lost funds by suing its auditor KPMG, according to a court appointed investigator who looked at the company's demise.
• After reaching a deal that allows its customers to access many of Universal Music's songs, the Financial Times reported that Nokia Corporation (NYSE: NOK) is in talks with the other three leading record companies - Sony Corporation's (NYSE: SNE) Sony BMG, EMI and Warner Music Group Corp's (NYSE: WMG) - about giving its customers access to their catalogues.

• Comscore has released its February "U.S. paid clicks" report, according to a source, which reportedly said Google Inc's (NASDAQ: GOOG) paid clicks in the U.S. during the month increased 3% year-over-year; however, the 'slight, slight improvement' from January may not actually be, the Silicon Alley Insider reported, since Comscore did not adjust for Leap Year. Google's paid clicks in December were up 12% and up 27% in November.

During the recent housing boom, people with lousy credit were not the only ones financing their purchases with subprime mortgages. The Wall Street Journal [subscription required] reports that in 2005, 55% of borrowers with good credit ratings -- who could have signed up for prime mortgages at lower interest rates -- got subprime mortgages instead.

Specifically, the Journal analyzed $2.5 trillion in subprime loans made since 2000 and found that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores -- above 620 -- high enough to often qualify for conventional loans with far better terms. The study by First American LoanPerformance, a San Francisco research firm, found the proportion rose to 61% by the end of 2006, up from 41% in 2000.

Why did this happen? The mortgage brokers got higher commissions for selling subprime loans. On average, U.S. mortgage brokers got 1.88% of the loan amount for originating a subprime loan, compared with 1.48% for conforming loans. As a result, the brokers did not notify borrowers with good credit of the "yield spread premium" equal to 2% of the loan amount -- or $8,000 on a $400,000 loan -- if a borrower's interest rate was an extra 1.25 percentage points higher than the listed rates of the subprime lender, in this case the now defunct New Century Financial.

How could we keep this from happening in the future? Bright red letters on the cover of a mortgage document disclosing the broker's compensation scheme might be a good start.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

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.