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Mortgage Lender Says It Can't Pay Its Creditors
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Last week, the company stopped accepting new loan applications under pressure from its creditors. It also has been late in releasing its most recent earnings and has said it will restate most of its financial results for 2006 because of accounting errors. The company is under investigation by a number of federal authorities, including the SEC, for its stock trading.
Like most subprime lenders, New Century sells its mortgages to investment banks that package these loans into bonds and trade them on the market. In recent weeks, the value of those mortgages has plummeted as investors abandoned the sector.
Under some of its banking agreements, New Century has to cover the difference between the original and decreased value of the mortgages.
In the SEC filing yesterday, New Century said it does not have the money, so its bankers have declared that it is in default.
Under its loan agreements, New Century could be forced to buy back the mortgages that the banks have not been able to sell on the market.
If all the banks force New Century to buy the mortgages, the amount would total $8.4 billion. Its lenders include such banks as Bank of America, CitiGroup, Credit Suisse and Morgan Stanley.
As recently as last week, Morgan Stanley made an emergency $265 million loan to New Century.
About two dozen lenders have closed or sold themselves this past year because of troubles similar to those New Century faces.
