Credit

For New Century, Is the Century Already Over?

The bankrupt mortgage lender whose case precipitated the subprime crisis says it may never file another financial statement.
Stephen TaubAugust 13, 2007

New Century Financial Inc. said it doubts that it will ever file a financial statement again.

The bankrupt subprime mortgage lender warned in a regulatory filing it will be unable to file its quarterly report for the period ended June 30, 2007 “without unreasonable effort and expense.” It also stated that “it is unlikely that the company will ever be able to file its financial statements.”

The company filed for bankruptcy back in early April, and previously reported that it has been unable to file its annual report for 2006 or its first-quarter 2007 report.

The Irvine, Calif.-based lender listed a number of factors for its inability to file financial reports, including the resignation of its independent accounting firm, KPMG LLP.
It further cited the complexities of bankruptcy accounting, the process of impairment testing and estimating the fair value of impaired assets, the determination of the tax provision together with the evaluation of tax deferred assets, and the possible need for valuation allowances.

New Century’s problems have been widely blamed for touching off the subprime mortgage and capital markets crises. As early as February, the company warned that its financial statements for the first three quarters of 2006 should be restated to correct errors in accounting and financial reporting of loan-repurchase losses.

New Century began its own investigation into issues that triggered the restatement, later expanding it, at KPMG’s request, to examine the valuation of residual interests in securitizations in 2006 and prior periods.

According to New Century at the time, KPMG told the company then that New Century would likely need to reassess its audit plan, and perform additional audit procedures, to obtain sufficient evidence concerning any conclusions reached by the investigating team. KPMG also advised the company there could be a material weakness in the company’s internal control over financial reporting.

In March, New Century disclosed that it was the subject of investigations by the Securities and Exchange Commission and federal prosecutors. It was subsequently delisted by the New York Stock Exchange. The next month, the company filed for bankruptcy, beginning a series of market events that led some high-profile hedge funds to report large losses in their mortgage-related derivatives investments.

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