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New Century Ends Freddie Mac Ties, Sees Loan Sales

New Century Financial,the troubled subprime mortgage lender, said on Wednesday it voluntarily ended its relationship with mortgage financier Freddie Mac, and that "several" of its own lenders plan to sell loans that had backed $17.4 billion of credit lines.

Jerry Sandusky, former Penn State football defensive coordinator (center), placed in police car.
AP
Jerry Sandusky, former Penn State football defensive coordinator (center), placed in police car.

The Irvine, California,-based company also said it has entered agreements with regulators in Idaho, Iowa, Michigan and Wyoming to stop lending. These follow similar agreements with or orders from several other states, including California and New York.

The developments may move New Century closer to bankruptcy. Many analysts expect it to seek protection from creditors, and perhaps sell assets as part of a reorganization.

"Until one knows exactly what they're holding onto and what they could sell it for, there's no accurate way to measure whether this company still has any value," said Theodore Kovaleff, a bank and thrift analyst at Sky Capital LLC in New York. "I certainly wouldn't want to be owning its stock."

New Century was the largest independent U.S. provider of home loans to people with poor credit before defaults mounted, forcing it to buy back many soured loans.

The company stopped making loans earlier this month. Federal prosecutors are investigating accounting errors and trading in its shares.

New Century updated its status in a Wednesday filing with the U.S. Securities and Exchange Commission. It did not immediately return a call seeking further comment.

New Century shares , which trade on the Pink Sheets, fell sharply.

Lenders Pull Back

New Century said its "voluntary" decision to end its Freddie Mac ties means it cannot sell mortgage loans to or act as the main servicer of any mortgage loans for the mortgage financier.

Fannie Mae, a larger mortgage financier, cut off its own ties with New Century earlier this month.

Meanwhile, as New Century's collapse deepens, the company's own lenders are moving to preserve their own stakes.

Last week, Barclaystook possession of $900 million of mortgages. This week, Morgan Stanleysaid it is auctioning $2.48 billion of loans, while France's Natixis said it is auctioning $800 million.

More than 30 subprime lenders have quit the industry in the last year. Others, including Fremont Generaland H&R Block , which owns Option One Mortgage, are trying to get out.

Fremont and Accredited Home Lenders, two California subprime lenders, have each sold billions of dollars of loans at a discount.

New Century's slide began on February 7, when it said it would restate results for the first nine months of 2006, and post a surprising fourth-quarter loss. Its shares traded at $30.16 before that disclosure.

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