The Boston Globe reports from Massachusetts. "Massachusetts Secretary of State William F. Galvin said yesterday his staff has demanded documents from two Wall Street firms over their recommendations on subprime lenders such as New Century Financial Corp. of California, questioning whether analysts remained too positive on the faltering companies to prop up other financial relationships."

"Yesterday, Galvin said he has also subpoenaed documents from UBS Securities LLC and Bear Stearns & Co. concerning their research on New Century and other firms. In an interview, Galvin noted analysts for both Wall Street firms had upgraded their recommendations on New Century at key points since February even as the California lender's woes piled up and it said it would restate earnings."

"One goal of the probe, he said, is to see whether other factors could have influenced the analysts' actions, such as investment banking relationships or the dealings of certain hedge funds with the companies. Both UBS and Bear Stearns were part of a 2003 settlement with Galvin and other regulators in which 10 firms promised to avoid future conflicts."

"But the case of New Century and others now suggests the terms of that deal haven't been met, he said. 'Our instincts were right in the past. We'll see if they're right this time,' he said."

From Reuters. "'We want to know if there were any conflicts. Were there relationships, investment banking relationships? Did the brokerage company have a financial position in the company? Were there hedge fund clients that might have had those,' Galvin said."

"He said Massachusetts had been hurt by foreclosures on subprime lender mortgages and that the investigation had some urgency to it. 'This is having an effect on the marketplace right now, so we want to make sure that we move on as rapidly as possible,' he said."

"In Massachusetts, where housing prices notched double-digit growth between 1995 and 2004 in a red-hot market, foreclosure filings surged 70 percent to 19,487 homeowners last year, as single-family home prices fell for the first time since 1993."

"The Federal Reserve Bank of Boston blames subprime loans, saying they accounted for more than two-thirds of the state's foreclosure filings in the third quarter of 2006, even though they made up just 12 percent of all mortgages."

The Boston Herald. "The subprime-mortgage market teetered on the brink of collapse yesterday, threatening everyone from Wall Street investors to Massachusetts home buyers who have bad credit."

"The state Division of Banks banned subprime giant New Century Financial Corp. from writing new mortgages in Massachusetts after the firm disclosed problems meeting financial obligations. Officials also ordered New Century to have other lenders take over any Bay State mortgages the firm was already working on."

"'We are forbidding them from taking any new loan applications and ordering them to place (all incomplete mortgages) with other lenders,' Banking Commissioner Steven Antonakes said."

"A source familiar with the situation said yesterday’s order affects 450 to 600 Bay State loans already in the pipeline. The person, who spoke on condition of anonymity, said bankers worked over the weekend to find new lenders for these loans. But the source said about 100 of the riskiest mortgages might not find takers, leaving some home buyers without financing."

"Somerville real estate broker Stephen Bremis said that, in the past two weeks, lenders have stopped approving no-money-down loans for people with weak credit. He said banks are also requiring private mortgage insurance on many subprime loans."

"But Bremis actually endorses such moves. He said giving no-money-down mortgages to people with bad credit 'was an accident waiting to happen.'"

"Massachusetts said it was coordinating its 'cease and desist' order with several other states, including New York, New Jersey and New Hampshire. 'There probably will be others either today or tomorrow,' Massachusetts Banking Commissioner Steven Antonakes told Reuters."

"The order applies to three New Century subsidiaries -- New Century Mortgage Corporation, Home 123 Corporation and New Century Credit Corporation."

"Antonakes said in a statement the action was prompted by serious concerns about New Century's finances after the firm on Monday said that all its lenders had canceled their lines of credit and it does not have enough cash to repay its own creditors."

"The banking commission also issued a cease and desist order against Brandon, Florida-based Apex Financial Group Inc. after it failed to disclose three enforcement actions by other states."

"It issued the same order against Garden City, New York-based Old Commonwealth Mortgage LLC after its owner pled guilty to a felony charge."

The Record from New Jersey. "Bergen County mortgage banker David Sadek was riding high a year and a half ago, serving sushi and shish kebab to investment-banking clients aboard his yacht A Loan at Sea."

"It was 'a good time to be in the mortgage business,' he told The Record in an interview. But in the second half of 2006, the business went quickly downhill."

"Amid rising defaults by borrowers, wholesale lenders cut off Sadek's funding last fall. Sadek quietly closed 18 lending offices in New York, New Jersey, Florida, Pennsylvania, California and Washington, firing all but about a dozen of the company's 110 employees, said William Dimin, an Englewood attorney. Dimin is representing the company in civil suits to recover bad debt."

"'Overexpansion in a very bad market,' Dimin said last week. 'That's what caused the downfall of the company.'"

"'It's a big shakeout," said David Akre, co-chief executive officer of a New York City-based real estate investment trust. 'For the most part, it's loose underwriting standards,' Akre said of the subprime lenders that have closed down. 'Under competitive pressure, underwriting took a back seat to common sense. They didn't want their volume to drop off.'"

"Meanwhile, loan brokers throughout New Jersey are reporting that their funding sources have tightened credit in recent months in response to rising defaults. 'Our lenders are giving us much more stricter guidelines,' said Michael Laheny, a broker in Paramus."

"The banking industry is trying to fend off increased regulation of mortgage lenders being called for by lawmakers and consumer groups concerned about people losing their homes. 'Market discipline in this industry is swift, can be severe, and is more effective at changing lending practices than any potential changes in regulation,' said Doug Duncan, the Mortgage Bankers Association's chief economist."