A recent capital crunch in the subprime mortgage market has left remaining industry veterans cautious and some relatively new entrants scrambling to find buyers for their loans.
This new air was painfully evident at the Mortgage Bankers Association of America's annual conference here.
Only a handful of subprime companies even had booths on the conference floor. This was in sharp contrast to a year ago when the trade show was dominated by new companies offering loan products that gave more credit more readily.
Many of these companies, which ultimately sell loans to larger players, are now scrambling to get rid of the loans they have made-or have stopped lending altogether.
Consequently the wholesale market for these loans has been flooded, and prices are low. But survivors, worried about their ability to securitize, are not rushing to buy.
Freddie Mac's chief executive officer, Leland C. Brendsel, emphasized his company's commitment to the subprime market during a conference session featuring him and James A. Johnson, CEO of Fannie Mae.
Freddie Mac is trying to "eliminate boundaries" between conventional and unconventional products so that "one lender can meet the needs of any borrower," Mr. Brendsel said.
Subprime companies represented at the conference, many of which had secured some sort of equity partner, were preaching caution and stressing their financial stability.
"We've got plenty of money," said Yvette Grishaver, a vice president at Delta Funding Corp. But the company isn't buying loans from just anyone, she said. "We're servicing the ones that have been loyal to us," she said.
Subprime companies that chose to sell out this year, meanwhile, are now reaping the rewards.
"The mood in our company is upbeat," said Rick Nelson, a manager at Money Store, which sold itself to First Union Corp. this spring. The low profitability of securitization isn't affecting Money Store at all, he said, because First Union can hold loans in portfolio until the market improves.
Others are still searching for capital infusions. Most recently, New Century Financial Corp. got a $20 million equity infusion on Monday when U.S. Bancorp bought a 16% stake in the company. U.S Bancorp.'s agreement with New Century is unusual in that the banking company has committed itself to buying and keeping in portfolio New Century loans.
"This is an unfair shakeout because the underlying fundamentals" of the subprime business are "as solid as before," Robert Cole, New Century's chief executive officer, said at the conference.
Nonetheless, he said industry turmoil has "eliminated originators," leaving opportunities for companies that are well capitalized. "Subprime lending has been around for many decades," Mr. Cole said. The belief that the market will just disappear "defies logic."
Several subprime industry people at the conference speculated that New Century had been close to running out of capital before the deal was announced. But Mr. Cole said the company had record liquidity in the third quarter.
In fact, fear and panic among subprime market watchers have spawned their share of rumors in recent months, as disillusioned analysts and investors tried to predict which company might be next to file for bankruptcy.
Long Beach Financial Corp. even sent a letter to customers reassuring them of the company's solvency.
"Over the past few weeks, several subprime loan originators have suffered from a lack of liquidity ... exacerbated by recent volatility in the asset-backed securities market," said the letter, which Long Beach Financial handed out at the conference. "These developments have led to unfounded speculation and rumors."