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The announcement yesterday the New Century, the 2nd largest subprime lender, is facing bankrupty is causing turmoil in the financial and lending markets. New federal guidelines and the inability to access capital are forcing the company to halt all new loan activity and may force the company under.

The years of loose money and easy credit look like they are coming to an end as the wall street bankers who were buying up all the subprime loans with their high interest rates are now forcing the lending companies to take them back, thus pushing the subprime lenders out of business.

Federal bank regulators, concerned about a spike in delinquencies and defaults on subprime home mortgages, earlier this month called on lenders to exercise caution in making the loans and to strictly evaluate borrowers’ ability to repay them. The regulators said the guidelines, if formally adopted by the agencies and followed by lending institutions, could result in fewer borrowers qualifying for subprime loans. Stocks rose on Wall Street on Monday as investors looked past widening cracks in the subprime-lending sector. A warning from New Century Financial about its financial woes initially overshadowed positive merger news in the trading session.
The prospect of bankruptcy loomed over New Century, the nation’s second-largest subprime-mortgage maker, which scrambled to stay afloat after all its bank lenders cut off funding or informed the Irvine company of their intent to do so because of its failure to make payments. New Century, which already has stopped accepting all new loan applications, said there is no guarantee it will receive additional financing. via San Jose Mercury News

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