New Century Watches as the Walls Crumble

Founded in 1995 by Brad A. Morrice, Robert K. Cole and Edward F. Gotschall, New Century focused on providing subprime loans that it then sold to investment banks, using that revenue to them fund more consumer loans, In 2003 and 2004, Fortune Magazine put new Century on their list of 100 fastest-growing companies. Over the years New Century Financial Corp. enjoyed flying high amid a strong housing market and a non stop demand from borrowers for subprime home loans to chase the American Dream. As recently as four months ago, CEO Morrice gave a positive outlook at an investor's conference. Despite acknowledging the growing challenges of subprime lending, Morrice said it was "an excellent business for the long term. However, faulty accounting and rising mortgage defaults have left New Century on the brink of bankruptcy. its stock has crashed and creditors and pressuring it to buy back billions of dollars in loans. Like many of its counterparts, New Century profited during the real estate boom, when appreciation rates were high and equity protected most home buyers from defaulting on their loans. Most could simply refinance or sell homes at a big enough profit to pay off mortgages and move on. Investments banks also became eager and jumped in to buy loans from subprime lenders and then separate them into bond products to sell on Wall Street. This helped New Century hit a record high on $65.95 in December 2004. Its earnings one year later also reflected a company that was flying high, despite mounting concerns over a weakening housing market. New Century posted net earnings that year of $411.1 million, or $7.17 a share, up from $375.6 million, or $8.29 a share, in 2004. Its loan production in 2005 hit a record $56.1 billion as it enjoyed four consecutive dividend increases. By 2006, the housing market took a downward turn which led to weaker price growth and declines in some high priced markets. On Feb. 7, the outlook for New Century changed and it informed the Securities and Exchange Commission that it would have to restate financial results for the first three quarters of 2006 since it had failed to accurately tally loses from loan repurchases. New Century stopped accepting new applications and revealed that its lenders had cut off funding and it also said it did not have enough funds to pay outstanding loan repurchase obligations. At this juncture the most likely outcome for the company will be to file for bankruptcy and be sold in a bankruptcy type auction.