Beleaguered Mortgage Lender Officially Seeks Bankruptcy Protection
New Century Financial filed for bankruptcy in Delaware today, becoming the biggest mortgage lender serving people with poor credit to officially seek court protection over the past year due to rising delinquencies.
The California mortgage lender was the biggest independent U.S. provider of mortgages to borrowers with low credit ratings in 2006, second only to London-based HSBC Holdings in total U.S. “subprime” loans granted.
The mortgage lender employed about 7,200 people at the end of 2005.
Late payments on subprime home loans reached a four-year high in the fourth quarter, the Mortgage Bankers Association reported.
At least two dozen home loan lender shutdowns or planned sales have been announced in the past year, including four that have gone bankrupt since last November.
Ownit Mortgage Solutions Inc. of Agoura Hills, California; Mortgage Lenders Network USA Inc. of Middletown, Connecticut; ResMae Mortgage Corp. of Brea, California; and People’s Choice Financial Corp. of Irvine are among the home loan companies that have filed for Chapter 11 protection.
U.S. prosecutors have started a criminal probe of the mortgage firm’s accounting errors as well as trading in securities at New Century, the company said March 2 in a filing with the U.S. Securities and Exchange Commission.
Since then, more than a dozen states have told requested the mortgage company halt operations, citing complaints from borrowers that their loans weren’t being funded. New Century had said it needed concessions from its own lenders to stay in business.
Large financial companies financed New Century to create a steady flow of home mortgage loans they could package into bonds. With delinquent home loans rising nationwide, those firms have cut back credit to mortgage lenders.
New Century, founded in 1995 by former managers at Option One Mortgage (the troubled mortgage lender arm of H&R Block) including CEO Brad Morrice, had survived a major industry shakeout in the late 1990s. Last year the home loan company made close to $60 billion in mortgages, a 6.6 percent gain over 2005.
SOURCE: Denver Post