New Century Financial has filed for Chapter 11 bankruptcy protection, further rocking the subprime mortgage market and raising additional concerns for the overall economy.
Once among the largest providers of mortgages to risky borrowers, New Century plans to fire 3,200 employees, or 54 percent of its work force. The company also announced that The CIT Group and Greenwich Capital Financial Products agreed to provide up to $150 million in debtor-in-possession financing. In addition, New Century agreed to sell to Greenwich certain loans and residual interests in certain securitization trusts for $50 million.
New Century also announced it that it will sell its servicing assets and servicing platform to Carrington Capital Management and its affiliate for roughly $139 million. That agreement “provides stability for holders of certain securities issued by New Century and Carrington’s securitization trusts,” said New Century president and chief executive officer Brad A. Morrice, in a statement.
According to the Associated Press, in the past few months more than two dozen subprime lenders have stopped making new loans.
Some observers have expressed concerns that the near-shutdown of the mortgage market for riskier borrowers could spread to the conventional mortgage market, where lenders may tighten credit standards for traditional customers. That, in turn, could further cut demand for homes, and therefore home values, reducing the equity that could be tapped for other consumer spending.