Shares of subprime lenders and companies with a stake in the risky end of the real estate business plunged in midday trading on Monday as analysts downgraded them and negative news continued to worry the market.
The decliners included Radian Group, Novastar Financial Inc., Kohlberg Capital Corp. and Impac Mortgage Holdings Inc.
BMO Bank of Montreal cut its opinion on Kohlberg Capital, a middle-market investment firm with a portfolio of term loans, to market perform from outperform. Its shares fell $1.79, or 12 percent, to $13.34 at midday on Nasdaq.
Deutsche Bank analyst Stephen Laws downgraded Irvine, California-based Impac, which specializes in mortgages with risk levels between prime and subprime loans, to hold from buy because of current market conditions. The lender's shares fell 26 cents, or 16 percent, to $1.40 on the New York Stock Exchange.
We do not believe Impac is immune to the problems other companies are experiencing, such as difficulties selling whole loans and margin calls, Laws said in a research note.
Radian, a mortgage insurer with a big stake in C-BASS, which invests in home loans to less-creditworthy borrowers, plunged $4.15, or 18 percent, to $18.50 on the NYSE. C-BASS has hired Blackstone Group to help it find more capital.
Novastar Financial, which provides mortgages to people with weak credit, fell $1.78, or 28 percent, to $4.62 on the NYSE after it said on Friday that it would temporarily suspend funding some of its loans.
Default rates on mortgages to high-risk, or subprime, borrowers have been creeping up, leading to problems for lending banks and others sharing the risks in the credit markets.
(Reporting by Ed Leefeldt)