Subprimes are Up

After trending generally lower since my last mention of them, subprime lenders New Century Financial (NEW) and Accredited Home Lenders (LEND) are up sharply today - roughly 5% at the time of publishing. NEW started its ascent on Tuesday, while LEND had been down until today.

No news on the major wires, but I did find this Piper Jaffray release dated January 10, 2007. From "Mortgage Outlook: Only Strong Survive; Environment Should Improve by End '07" by Robert P. Napoli:

"Although industry wide subprime credit statistics will deteriorate, credit trends tend to vary greatly from company to company in the subprime space. The charts below display the static pool delinquency data on securitizations of Accredited Home Lenders (LEND: Market Perform), New Century (NEW: Market Perform), and NovaStar Financial (NFI). Historically, LEND's delinquencies have run significantly lower than the subprime industry average. NEW's delinquency data has been improving with the more recent vintages. We believe that NEW has become a more rationale player over the past year and 'got religion' after a scare in August/September of '05 on narrow spreads on aggressive loan types. Very recently, NEW has also adopted even tighter underwriting standards in response to weakening credit trends and the interagency lending guidelines. We believe that both LEND and NEW will be survivors of the subprime shake-out, for several reasons including the lowest cost to originate, larger capital bases, longer corporate history, better underwriting and collections capabilities and, in part, because they have adjusted their underwriting in response to weakening subprime credit."

The report also mentions that Piper Jaffray is lowering it price targets on both securities, but maintaining coverage due to their survivor instincts.

Not sure if a Kind Word from an under-read analyst was enough to set these in motion. Regardless, their both still incredibly cheap, with Forward P/E Ratio's under 7.

Unnecessary Disclosure: I currently have no positions in the securities mentioned above.