Mortgage Lender Movement: New Century Cuts Ties with Freddie Mac
New Century Financial Corp., the troubled subprime mortgage lender, said on Wednesday it ended its relationship with mortgage financier Freddie Mac, and that “several” of its own lenders plan to sell loans that had backed $17.4 billion of credit lines.
The Irvine, California-based company also said it entered agreements with regulators in Idaho, Iowa, Wyoming and the Michigan housing market to stop lending. These follow similar agreements with or orders from several other states, including California and New York, arising from New Century’s failure to fund loans.
New Century said it decided voluntarily on Monday to stop selling or being the main servicer of loans for Freddie Mac, the second-largest U.S. home loan financier. Fannie Mae, the largest financier, cut off its own ties with New Century earlier this month, saying the company breached some contracts.
Wednesday’s developments may move New Century closer to bankruptcy. Many analysts expect it to seek protection from creditors, and perhaps sell assets as part of a reorganization.
“Until one knows exactly what they’re holding onto and what they could sell it for, there’s no accurate way to measure whether this company still has any value,” said Theodore Kovaleff, a bank and thrift analyst at Sky Capital LLC in New York. “I certainly wouldn’t want to be owning its stock.”
New Century updated its status in a filing with the U.S. Securities and Exchange Commission. Spokeswoman Laura Oberhelman declined to elaborate immediately on the filing.
New Century was the largest independent U.S. provider of bad credit home loans before defaults mounted, forcing it to buy back many soured loans. The company stopped making loans earlier this month, and federal prosecutors are investigating accounting errors and trading in its shares.
LENDERS STEP IN
At least three New Century lenders have taken steps to avoid heavy losses stemming from the company’s troubles.
Last week, Barclays Plc took possession of $900 million of mortgages. This week, Morgan Stanley said it will auction $2.48 billion of loans, while France’s Natixis said it will auction $800 million.
More than 30 subprime lenders have quit the industry in the last year. Others, including Fremont General Corp. and H&R Block Inc., which owns Option One Mortgage Corp., are trying to get out.
Fremont and Accredited Home Lenders Holding Co., two California subprime lenders, have each sold billions of dollars of loans at a discount.
New Century’s slide began on February 7, when it said it would restate results for the first nine months of 2006, and post a surprise fourth-quarter loss. Its shares traded at $30.16 before that disclosure.