From the Wall Street Journal:
At a Mortgage Lender, Rapid Rise, Faster Fall
Ruthie Hillery was struggling to make the $952 monthly mortgage payment for her three-bedroom home in Pittsburg, Calif., last summer when a mortgage broker called. The broker persuaded the 70-year-old Ms. Hillery to refinance into a “senior citizen’s” loan from New Century Financial Corp. that she thought would eliminate the need to make any payments for several years, according to her lawyer.
Instead, the $336,000 adjustable-rate loan started out with payments of $2,200 a month, more than double her income. In December, Ms. Hillery received notice that New Century intended to foreclose on the property. Then, earlier this month, after a formal demand by the lawyer, New Century agreed to refund all its fees and cancel the loan once Ms. Hillery gets refinancing elsewhere.
The lawyer, Alan Ramos, says the loan never should have been made. “You have a loan application where the income section is blank,” Mr. Ramos says. “How does it even get past the first person who looks at it?”
…
New Century, an 11-year-old company that billed itself as “a new shade of blue chip,” has become a symbol of excess in lending to subprime borrowers, people with weak credit records or high debt in relation to their income. The company has imploded over the past few months as defaults surged and accounting misdeeds surfaced. New Century’s share price last week dropped 78% to $3.21 as some traders bet a bankruptcy-court filing is near.New Century’s swift rise and fall illuminates how Wall Street investment banks such as Morgan Stanley and hedge funds awash in cash helped fuel a binge in subprime lending that prolonged the housing boom. The lenders made themselves vulnerable by relying heavily on outside mortgage brokers and gunning for growth even as the boom faded. The Wall Street banks supplied the money to keep them on a roll, readily gobbling up loans and turning them into securities that global investors were avid to put into their portfolios.
With a work-hard, party-hard culture, New Century took its employees on a boozy cruise to the Bahamas and threw one bash in a train station in Barcelona, Spain, former employees say. Within a few years, the company, whose head offices are in a black-glass tower in Irvine, Calif., became one of the nation’s top subprime lenders, jostling with older rivals like HSBC Holdings PLC and Countrywide Financial Corp.
Last week, New Century announced that it had stopped making loans because too many creditors had cut off funding. The company expects to report a loss for 2006 but can’t yet quantify it. It is facing a federal criminal investigation of its accounting and trading in its stock before a negative announcement in February.