I don't think NFI has a flawed business model, or at least they didn't back when I owned it (from 21 and 31 to 49, sold WAY too soon <g>). When I researched the company, they had almost all of their mortgage loans backed up with PMI or other insurance, thus their business model was solid, as they had very little risk of loss on foreclosures/defaults/etc.
However, I do think that as interest rates trend higher, the company will lose its earnings momentum as the number of refinances slows to a trickle, and their business comes almost entirely from new mortgages. Obviously I have already sold the stock and sold it far too soon, but if I still owned the stock, I would certainly have a stop in place to protect my gains.
I think most of that short position was established in the 20's price-wise, and from the figures you can see that quite a few shorts have already thrown in the towel and taken their lumps. I would guess most of the rest will probably stay short now, with interest rates starting to rise and refinancing already slowing significantly. My feeling is that within the next year to 18 months the stock will pull back significantly. Whether those shorts can eventually get out with a profit remains to be seen. The first time they announce a dividend lower than the previous quarter (which likely won't happen in this week's report, but probably will within the two quarters following that), look out below.
Obviously the part about them going to zero and job losses, etc., I disagree with completely, but that is another discussion. <g>
All IMHO of course.
Carl |
