New Century
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New Century Financial Corporation Pink Sheets: newc was founded in 1995 by a trio of former managers at Option One Mortgage, including current Chief Executive Officer Brad Morrice, and is headquartered in Irvine, California. New Century Financial Corporation is a real estate investment trust that originates mortgage loans in the United States through its operating subsidiaries, New Century Mortgage Corporation and Home123 Corporation.
As of January 1, 2007, New Century Financial Corporation had approximately 7,200 full-time employees[1] and a market capitalization of $1.75 billion. FY 2005 net income was $417 million.[2] New Century was formerly listed on the New York Stock Exchange and is now trading on the over the counter pink sheets. By March 14, 2007, the day after the New York Stock Exchange delisted New Century Financial Corporation, the market capitalization value of its stock was less than $55 million.
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[edit] Subprime Mortgage Lending Activities
As of January 1, 2007, New Century Financial Corporation was the second-biggest subprime mortgage lender in the United States, and was headed by Brad Morrice, President and CEO. Fredric J. Forster, a lead independent director, served as a non-executive Chairman of the Board. Subprime mortgage loans are riskier loans in that they are made to borrowers unable to qualify under traditional, more stringent criteria due to a limited or blemished credit history. Subprime borrowers are generally defined as individuals with limited income or having FICO credit scores between 500 and 620 on a scale that ranges from 300 to 850. Subprime mortgage loans have a much higher rate of default than prime mortgage loans and are priced based on the risk assumed by the lender.
To help promote the company, New Century's Home123 division used Bob Vila as an advertising spokesman. It also entered into a sponsorship deal with NASCAR and helped sponsor the Chip Ganassi Racing with Felix Sabates team, occasionally appearing on the #42 race car driven by Jamie McMurray. (McMurray has since left for Roush Fenway Racing and the #26 team.)
[edit] Financial Difficulties, Bankruptcy and Criminal Investigation
On March 8, 2007, New Century Financial Corporation said that it has stopped accepting loan applications because some of its financial backers are refusing to provide access to financing. New Century Financial Corporation also said that it has received $150 million worth of margin calls from its warehouse lenders. "As a result of the current constrained funding capacity, the company has elected to cease accepting loan applications from prospective borrowers effective immediately, while the company seeks to obtain additional funding capacity," New Century Financial Corporation said in a statement. New Century Financial Corporation also said that one of its financial backers has demanded that the company repurchase some loans pursuant to repurchase provisions contained in loan purchase agreements.
On March 9, 2007, New Century Financial Corporation reported that it had failed to meet certain minimum financial targets required by its warehouse lenders and disclosed that it is the subject of a federal criminal investigation. New Century Financial Corporation further indicated that it does not have the cash to pay creditors who are demanding their money.
On March 12, 2007, the New York Stock Exchange said in a statement it halted trading of New Century Financial Corporation while it decides whether to keep listing the company's securities in light of the liquidity problems. The stock of New Century Financial Corporation has lost approximately 90 percent of its value since the start of March 2007 on news of growing defaults and problems getting new financing.
On March 13, 2007, New Century Financial Corporation reported in a regulatory filing that it has received a grand jury subpoena from the U.S. Attorney's Office for the Central District of California as well as a letter from the Securities and Exchange Commission notifying the company of a preliminary investigation. The filing stated that the U.S. Attorney's office indicated in a letter dated February 28, 2007 that it was conducting a criminal inquiry in connection with trading in the company's securities as well as accounting errors regarding the company's allowance for repurchase losses. The filing further stated that the Securities and Exchange Commission has requested a meeting with the company to discuss the company's previous announcement that it would restate certain financial statement.
On March 20, 2007, New Century Financial Corporation said that it can no longer sell mortgage loans to Fannie Mae or act as the primary servicer of mortgage loans for the Government Sponsored Enterprise. In a filing with the Securities and Exchange Commission, New Century Financial Corporation said that Fannie Mae terminated "for cause" a mortgage selling and servicing contract with it citing alleged breaches of that contract and others. New Century Financial Corporation said it received a notice of breach and termination on March 14, 2007.
New Century Financial Corporation further said that it has received "cease-and-desist" orders from California, that it has entered into consent agreements with Florida and Washington state regulators, and that New York's banking department has suspended the banking license of its Home123 Corporation subsidiary for up to 30 days.
On April 2, 2007, New Century Financial Corporation and its related entities filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court, District of Delaware located in Wilmington, Delaware. New Century Financial Corporation listed liabilities of more than $100 million. New Century Financial Corporation also announced that the employment of about 3,200 people, more than half the workforce, will be terminated. New Century Financial Corporation said in a statement that it has obtained $150 million in financing from CIT Group Inc. and Royal Bank of Scotland Group Plc's Greenwich Capital unit to use as its bankruptcy case moves through the court process. The company said it plans to sell most of its assets within 45 days of the bankruptcy filing.
The Bankruptcy Cases for New Century Financial Corporation and its related entities are pending before the Honorable Kevin J. Carey in the United States Bankruptcy Court, District of Delaware and will be jointly administered under Case No. 07-10416. The First Day Hearing was scheduled for April 3, 2007.
[edit] References
- ^ NEW: Profile for New Century Financial Corp.. Yahoo! Finance (2007). Retrieved on January 2, 2007.
- ^ NEW: Income Statement for New Century Financial Corp.. Yahoo! Finance (2007). Retrieved on January 2, 2007.
