New Century

New Century

New Century Financial Corporation was founded in 1995 by a trio of former managers at Option One Mortgage, including former CEO Brad Morrice and is headquartered in Irvine, California. New Century Financial Corporation was a real estate investment trust that originated mortgage loans in the United States through its operating subsidiaries, New Century Mortgage Corporation and Home123 Corporation.

As of January 1, 2007, New Century 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.

Contents

Subprime Mortgage lending activities

As of January 1, 2007, New Century was the second-biggest subprime mortgage lender in the United States, and was headed by Brad Morrice, President and CEO. Frederic 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.

In marketing the company, New Century's Home123 Mortgage division engaged Bob Vila as an advertising spokesman for several years. It also entered into a sponsorship deal with NASCAR, as the Official Mortgage Company of NASCAR and sponsor the Chip Ganassi Racing with Felix Sabates team, in both the Cup and Busch series, appearing on the #42 race car driven by Jamie McMurray and #41 race car driven by Reed Sorenson. (McMurray has since left for Roush Fenway Racing and the #26 team.) They also sponsored a more niche NASCAR series and sportcar racer Cort Wagner.

Financial difficulties, bankruptcy and criminal investigation

"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 had 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.

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.

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.[citation needed]

On May 25, 2007, they filed their form 8-K[3], a day after stating that they "...probably overstated 2005 earnings."[4]

On June 8, 2007, New Century Financial warned that its effort to liquidate assets could be stymied if GE Capital is allowed to proceed with plans to seize computers and other equipment it leased to the bankrupt housing lender. GE Capital, arguing that New Century owes it $8.7 million on leased equipment and can't stay current on payments, has asked a judge to lift the protection normally granted to companies in Chapter 11. That would enable the firm, a unit of General Electric, to repossess the equipment, which includes computer servers, and chairs. New Century said that would disrupt its effort to wind down operations and repay creditors. New Century said "much of the data and information" involving its assets and business operations, including accounting information, is stored on the computers, or generated by them. New Century also said "it is critical for the debtors to use the equipment" so that the loan-servicing business it recently sold to Carrington Capital Management can be kept "operating as a going concern." Carrington paid $188 million for the business.[citation needed]

On March 26, 2008, an unsealed report by bankruptcy court examiner Michael J. Missal [5] outlined a number of "significant improper and imprudent practices related to its loan originations, operations, accounting and financial reporting processes," and accused auditor KPMG with helping the company conceal the problems during 2005 and 2006.[citation needed]

On December 7, 2009, Federal regulators sued three former officers of New Century Financial Corp., accusing them of misleading the company's investors about the company's prospects, as pervasive bad acts in the mortgage industry began to become widely known.[6]

On July 31, 2010, the Los Angeles Times reported that a settlement has been reached between the SEC, three officers and the directors of New Century. The settlement bars them from serving as directors of public companies for five years, and levies fines and profit-disgorgement on the 3 officers. The corporate officers involved were Brad Morrice, Patti M. Dodge and David N. Kenneally. The disbarred directors were co-founder Robert K. Cole, the estate of co-founder Edward Gotschall, Fredrick J. Forster, Michael M. Sachs, Harold A. Black, Donald E. Lange, Terrence P. Sandvik, Richard A. Zona, Marilyn A. Alexander, David Einhorn and William J. Popejoy.

See also

References


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