Complain about a product or service

New Century Files for Bankruptcy

By Mark Huffman
ConsumerAffairs.com

April 2, 2007

Mortgage Crisis? Act Now to Avoid Foreclosure • Avoiding Foreclosure Takes More Than Hope --- • Distressed Homeowners May Be Able To Rent Their Homes • Should You Walk Away From Your Underwater Mortgage? • Home Prices Rise Four Months In A Row • Consumer Credit Plunges In August • Study: Action By Feds Made Housing Crisis Worse • Mortgage Lender's Collapse Leaves Borrowers Adrift • Bank of America, Wells Fargo Hit With Class Action • Bank Sees Dim Future For Homeowners • Ohio Sues Mortgage Servicer Over Lack Of Modifications --- • More ...

Two months after it first sounded the alarm over rising defaults, subprime lender New Century Financial Corp. has filed for Chapter 11 bankruptcy protection. The company fired more than 3,000 employees and said it plans to sell off most of its assets in the next six weeks.

More than 30 subprime lenders have gone under in the last 12 months, but New Century is the largest of the group. It suspended its loan operations in March.

Subprime loans are made to consumers with little or poor credit. Not long ago these consumers would have not been able to get a home loan, but subprime loans -- loans that carry higher rates and fees, ostensibly to compensate lenders for the increased risk -- have extended credit to them.

At the same time, subprime lending allowed the mortgage and real estate industries to boom, bringing a whole new category of customer and driving up prices and profits. New Century reported profits of $60 billion in 2006.

Critics of subprime lending, like William Cunningham of Washington, D.C.-based Creative Investment Research, says most subprime lenders engaged in predatory practices, and outright fraud, against this new group of consumers.

"Things like credit life insurance policies, disability insurance, these are some of the things that are added to a mortgage to inflate its price. They're fraudulent because they either aren't needed or they don't exist," Cunningham told ConsumerAffairs.com.

Other subprime critics point to over-leniency in lending rules for the collapse. As real estate values continued to skyrocket, they say lenders were blind to the risk, assuming values would always increase. They say many delinquencies and defaults are up become lending standards fell too low.

Report Your Experience
If you've had a bad experience -- or a good one -- with a consumer product or service, we'd like to hear about it. All complaints are reviewed by class action attorneys and are considered for publication on our site. Knowledge is power! Help spread the word. File your consumer report now.

Share		Follow us on Twitter.

Back to the top |