- Greek Cabinet Approves EU, IMF Bailout Bill
- We're Not Greece: Italian Prime Minister Monti
- Private Homebuilders in the US: Dead Men Walking
- Dividend Payout Could Hit Record Amount This Year
- With Investors So Bullish, Stock Pullback Must Be Ahead
- Obama Likely to Call for Cutting Top Corporate Tax Rate
- New York Fashion Week Fall 2012
- NetNet: Why Saving Greece Could Destroy the World
- My Funny Valentine: When Love and the Fed Collide
- In Search of America's ‘Hottest Forecasters’
- Dow vs. S&P 500: Which is a Better Investment?
- Mick Fleetwood on the MP3 ‘Dumbing Down’ of Music
- Avis on the Road to Strong Growth: Analyst
- Private Homebuilders: Dead Men Walking
- LinkedIn’s Growth Is Already Priced In: Analyst
- The Real Reason Behind Bank of America’s Rally
- 5 Hedge Funds’ Top Stocks Soar After 2011 Rout
- This Valentine’s Day Love Is Served on a Silver Platter
MOST SHARED
- We're Not Greece: Italian Prime Minister Monti
- Obama Likely to Call for Cutting Top Corporate Tax Rate
- To Play Senate Cybersecurity Bill, Cramer Likes Fortinet Stock
- Greek Cabinet Approves EU, IMF Bailout Bill
- Special Feature: Wall Street History - How Wall Street Got Its Name
- How to Trade the Turmoil in Greece
- Private Homebuilders: Dead Men Walking
- Why Cramer Likes Select Comfort Over Tempur-pedic Stock
- Cramer: 10 Earnings to Watch Next Week
- Lightning Round: Trina Solar, Zoltek, Affymax and More
MOST POPULAR
HOT ON FACEBOOK
New Century Lenders Cut Off Financing; Stock Halted
Text Size 
New Century Financial [NEW
Loading...
()
], the largest independent U.S. subprime mortgage lender, said on Monday its lenders plan to halt financing, pushing the company closer to bankruptcy amid dwindling cash and $8.4 billion in obligations that could come due immediately.
New Century's struggles are part of a wider meltdown among lenders to less-creditworthy home buyers, which has seen the sector struggle as default rates have soared. The contagion could spread, roiling a larger section of the U.S. economy while hitting investors, such as pension funds, which bought securities backed by suspect home loans, analysts say.
If home prices remained flat this year and next, mortgage defaults could total $225 billion, with a real risk of pulling down the broader housing market and weighing on borrowers with good credit, Lehman Brothers analysts said in research note.
"Our expectations of defaults at about 1.5 million to 2 million units are fairly significant in a soft housing market," the analysts said recently.
The largest U.S. mortgage lender, Countrywide Financial [CFC
Loading...
()
], warned that subprime turmoil may hurt near-term profits, sending its stock lower in the afternoon.
Soon after the market opened Monday, the New York Stock Exchange delayed trading in New Century's shares, citing a pending news announcement. The shares had already plunged 48% before regular NYSE trade, dropping to $1.66. The company declined comment on speculation that it would seek bankruptcy protection. The exchange said it is reviewing the continued listing status of New Century's stock.
New Century [NEW
Loading...
()
] of Irvine, Calif., said in a U.S. Securities and Exchange Commission filing Monday that it could be forced to repurchase about $8.4 billion in loans, if lenders accelerated all of its obligations. It said it does not have sufficient liquidity to satisfy those obligations.
Key Lenders Include Big Investment Banks
Among the key lenders is investment bank Morgan Stanley [MS
Loading...
()
], which could force New Century to repurchase $2.5 billion in loans. Other lenders include Citigroup [C
Loading...
()
]]]
The repurchase obligation to Morgan Stanley was the largest cited by New Century in a filing with the U.S. Securities and Exchange Commission.
New Century said it had already received two letters from Bank of America that "purport to accelerate" repurchase obligations pegged at $600 million.
Separately Monday, Standard & Poor's on Monday cut its counterparty credit rating on New Century Financial Corp. to "D," or default, citing notices of default from several lenders based on violations of financing arrangements.
New Century's inability to meet the notes that are immediately payable is tantamount to a general default, S&P said. It cut New Century's rating to "D" from "CC."
As of Sept. 30, New Century reported $25.1 billion in total assets, including $14 billion in loans held for investment, and total liabilities of $23 billion. The company reported $350 million in cash and liquidity at the end of the year, but it appears its cash has fallen below $60 million, according to Monday's SEC filing.
New Century said it has been accused of breaching a covenant with Citigroup that required the subprime lender to maintain at least $60 million in cash.
"The value of their assets is questionable, because they probably have exposure on the subprime (asset-backed securities) they issued," said Steve Persky, principal at Dalton Investments, which manages $1 billion in assets. "...They've said their accounting can't be relied on, so it looks like New Century is toast."
Los Angeles-based Dalton had a short position in New Century shares, but closed it out, Persky said.
New Century shares, down 89% this month, have been hammered by a barrage of negative announcements, including that it would stop making new loans and was the target of a criminal investigation.
Shares of Subprime Lenders Battered
Over the past several weeks, subprime shares have been battered over a rising tide of late payments by borrowers. That trend continued on Monday, lopping 17.6% off Fremont General's[FMT
Loading...
()
] ] ]]
Robert Froehlich, chief investment strategist at DWS Scudder, said a crimp in subprime lending could hurt U.S. housing demand.
"Because of the virtual collapse of mortgage lending standards over the past couple of years in the U.S., rapid growth in subprime lending has accounted for much of the incremental home purchase demand in recent years," Froehlich said. "Removing this segment will soften already slowing demand."
New Century said there was no guarantee it would get adequate financing to meet its obligations. If the company were not able to satisfy repurchase obligations, lenders could liquidate related mortgage loans.
New Century would be on the hook for any difference between the liquidation amount and contractual amount of the loans.
"The company and its subsidiaries may not have sufficient resources to satisfy any such deficiency," New Century said.
That could well set the stage for a bankruptcy filing, if a white knight financing deal did not materialize.
- Marketing clichés aside, sometimes diamonds are for investing.
- The ‘Fast Money’ traders weigh in on fashion related stocks from apparel to footwear.
- This list of the 10 most active cities for speed traps was compiled by Trapster.com. See if your town is there.
- This Valentine’s Day should prove a love fest for restaurants, as many couples will be dining out.
- Here’s a look at Westminster Kennel Club’s most successful breeds—and how much they cost.
- What kind of homes do celebrity couples share? Here’s our updated list. Take a look.
Data is a real-time snapshot *Data is delayed at least 15 minutes
