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Subprime Lender On Verge Of Bankruptcy

March 13, 2007

Living in a Bubble? Mortgage Crisis? Act Now to Avoid Foreclosure • Avoiding Foreclosure Takes More Than Hope --- • Mortgage Applications Surged 112 Percent Last Week • GAO Calls for Better Bailout Oversight • Homes Lose More Value In Third Quarter • Home Prices Post Record Decline • Fed Throws $800 Billion Lifeline to Consumers • Existing Home Sales Drop in October • When in Doubt, Leave Nothing Out • Fannie Mae and Freddie Mac Suspend Foreclosures • Consumer Prices Plunge in October • Paulson Rejects Bailout Money for Detroit • Another Glimmer of Hope in The Housing Market • Buyers' Beware Market • FDIC Backs More Aggressive Loan Modification Plan • Housing 2009 Forecasts Mixed, But Mostly Grim • Foreclosures Up Five Percent in October • Feds Shift Gears On Bailout, Puts Focus On Consumers • More Homeowners Under Water in Third Quarter • Feds Mount New Effort to Help Struggling Homeowners • Lenders Embrace Workouts for Struggling Homeowners • Obama Can't Quickly Raise Homebuyers' Hopes • At Last: Bailout Trickling Down to Struggling Homeowners • New Home Sales Rise in September • How to Appeal Your Property Tax Bill • Existing Home Sales Rise in September • Administration Considers More Help for Homeowners • Foreclosure Activity Drops in September • Southern California Home Sales Surge 65 Percent in September • HOEPA: New Hope for Outlawing Abusive Mortgages • FDIC Chief: Not Enough Help for Homeowners --- • More ...

Talk about irony; the nation's second largest subprime lender, which got rich making "creative" loans to consumers who couldn't otherwise qualify to purchase the home they were buying, is itself now broke.

New Century Financial Corp. says it lacks sufficient funds to pay its creditors, leading to speculation on Wall Street the company will file for bankruptcy.

The company's problems likely stem from the fact that a large number of its mortgage customers can no longer make their monthly payments. Many are faced with huge increases in their payments after an initial low, adjustable rate was adjusted upward to the prevailing market interest rates.

Bloomberg quotes Bose George, a Wall Street analyst with Keefe Bruyette & Woods as saying New Century is "one step closer to bankruptcy." The company's only salvation, he says, is for some large investment bank to buy the company.

Others say this may only be the tip of the iceberg, revealing the murky underworld of the subprime lending market, where most customers are consumers with few, if any, other options. Most subprime customers have poor or no credit. A subprime lender will make loans to them, but covers its increased risk with higher rates and fees.

New Century Financial has come under increasing financial pressure as Wall Street loses its one time infatuation with subprime lending. In recent weeks Freddie Mac has said it will no longer do business with subprime lenders.

Now, investment banks like Goldman Sachs, Morgan Stanley and Citigroup are demanding that New Century repurchase all mortgage loans that they financed. The company says it simply doesn't have the cash to do that.

While New Century Financial's woes make news, less reported is the devastation felt by subprime borrowers.

Various real estate industry analysts calculate that more than 1.5 million Americans may suffer foreclosure because they obtained subprime mortgages with escalating rates, pushing payments beyond their means.

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