New Century Expected To File Bankruptcy Imminently (Update: They Filed)
The wild ride that New Century Financial Corp is about to enter a new chapter, and that chapter will be the form of bankruptcy it will enter sometime this week according to experts. The lending company that was a leader in subprime lending had it’s credit cut off the past few weeks as word of the high rate of foreclosures and loan defaults that were coming back at the company.
The sour loans combined with the loss of borrowing power and a federal investigation are putting this high flying New Century into bankruptcy protection.
New Century was one of the fastest-growing mortgage lenders until recently. Its loan originations jumped to $59.8 billion in 2006 from $6.3 billion five years before. But the company announced in early February that it would need to restate earnings for the first three quarters of 2006, partly to reflect the higher-than-expected costs of defaults. New Century also said it expects to report a loss for all of 2006 but couldn’t yet quantify that loss. In addition, the company has announced that it is the subject of a federal criminal investigation into its accounting and trading in its shares.
In early March, New Century stopped making loans because too many creditors had cut off funding. Since then, the company’s top officers have been closeted with lawyers and other advisers in an effort to sell assets and appease creditors, while state regulators have rushed to clamp tighter controls on the company.
New Century shares traded Friday on the Pink Sheets at $1.06, giving the company a market value of around $60 million, down from last year’s peak of about $2.9 billion. via WSJ.com
Update: 11:00 AM According to reports from Bloomberg New Century did file this moring for bankruptcy protection in Delaware.
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Comment by Ed on 2 April 2007:
Not only does this affect those that invested in New Century, it also is having a huge impact on the bond market where they used their loans as backing for the bonds. This market is off for the year and is likely to continue to slide. Bloomberg had this Bloomberg artile today. Wonder how many on wall street are still calling for growth in the real estate market in 2007?
– The Open House Network – ROpenHouse
Comment by Jason Kaminski on 2 April 2007:
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Comment by Ed on 2 April 2007:
What was surprising to me was the assertion in the article that “in the past two years, New Century underwrote about $120 billion of loans, or more than half the total since its inception. Subprime loans accounted for 86 percent of all New Century loans last year, the company said in today’s court filings.”
This should have triggered a warning flag to someone on wall street or in the government. That is unhealty growth.
– The Open House Network – ROpenHouse