Subprime Stew Bubbles

Shares of many subprime lenders, or those who lend money to consumers with the poorest credit histories, have been beaten to a pulp over the last month. Many have reported dismal earnings results and losses as the environment deteriorates for subprime loans.

At least three closely held subprime lenders -- Ownit Mortgage Solutions, Mortgage Lenders Network and ResMae -- have filed for bankruptcy in recent months.

On Friday, the news went from bad to worse for two other companies.

Fremont said Friday that it plans to exit subprime lending and has hired Credit Suisse to assist the company in selling the business. The Santa Monica, Calif., lender will continue making commercial real estate loans, it says.

Also on Friday, New Century said federal prosecutors were conducting a criminal investigation into accounting errors and trading in the company's stock, in a Securities and Exchange Commission filing.

The Irvine, Calif., subprime lender, which already said it will have to restate financial results for the first three quarters of 2006 because of accounting errors, anticipates recording a loss for the fourth quarter and full year 2006.

"It does appear that multiple issues are conspiring to push New Century over the edge of the death spiral we had been in fear of," writes Kenneth Bruce, an analyst at Merrill Lynch who rates the stock sell.

"We think it is more likely than not that one or more creditors decides it is in their best interest to terminate its relationship with New Century, thus initiating a chain of events that ends insolvency," he writes. "A bankruptcy could be the best option for the board to consider."

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