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Playing the Unraveling Housing Market


Now you too have plenty of reasons not to enjoy your weekend.


Given my reluctance to be short the homebuilders at this point, in the past few days I have received emails asking for collateral ways to play the housing unraveling. This is becoming even more relevant now that H&R Block (HRB) is already feeling the squeeze on the lending side. So here are a few names - many rather obvious probably - with the caveat that they are even less of the "advice" nature than usual given that I really haven't looked into most of them:

Mortgage Insurers: Radian Group (RDN); The PMI Group (PMI); Triad Guaranty (TGIC); and MGIC Investment (MTG).

Consumer Finance Cos.: Capital One Financial (COF) - this is the only name I have been short for longer than I care to admit and it feels like it's taken even longer to start working; old "friend" Portfolio Recovery Associates (PRAA) (do a search for my earlier pieces); and Asta Funding (ASFI).

Broader Financials - which Prof. Succo already mentioned today on the Buzz - such as Washington Mutual (WM), Accredited Home Lenders (LEND); Herb's long lost friend Novastar Financial (NFI); and New Century Financial (NEW). One not mentioned so far today is Wachovia Bank (WB), which is in the process of acquiring ARM's heavy Golden West Financial (GDW). I think there is a risk of buyer's regret if that deal goes through.

Smallish ARM's focused lenders: Downey Financial (DSL) and BankUnited Financial (BKUNA); and lastly condo lender Corus Bank (CORS) - also in Herb's bullseye.

One name that I've yet to figure out whether it may actually benefit from the mortgage problems is Ocwen Financial (OCN).

The only Index I know that gets close to being a good proxy - it does have options - is the KBW Mortgage Finance Index (MFX).

Now you too have plenty of reasons not to enjoy your weekend.

Positions in COF, BKUNA, RDN
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