New Century's demise impact on the local market

NEW -> Contingent Buyer Assistance Program
muzie_IHB

muzie_IHB

New member
<p>So all of you know by now that New Century, one of the country's largest subprime lender, based right here in Irvine, is facing difficulties - with the stock having lost about 75% now since its high, class action lawsuits pending and rumors of forced bankruptcy.</p>

<p>Most likely they will at least cut down their staff (of 7000), so that's at least a few jobs that'll be lost.</p>

<p>Should New Century (or others) spiral further down into bakruptcy, how would this affect the buyers who took mortgages through them? From what I understand those loans were sold off as asset-backed securities. Will current mortgage payers be affected by the demise of sub-prime lenders?</p>

<p>One way I can see is that all these ARM I/Os that will come to term in the next few years will then realize they don't even qualify for another I/O because the subprime lenders are either gone or demand much higher return for the risk. So even if rates stay the same or go down, it sounds like a bunch of mortgage holders who are fine now will face difficulties.</p>
 
Yes, to all your points. Sub-prime lending has created time-bomb loans that will be going off for the next several years. As each one faces reset, they will be unable to refinance, and they will lose their home. One more foreclosure added to the market driving prices lower. This is one of the central tenants of the bearish argument.
 
<a href="http://money.cnn.com/2007/03/05/news/economy/subprime/index.htm?postversion=2007030516">Subprime woes: How far, how wide?</a>





Problems loans to home buyers with less than top credit has become a big threat to the markets - and the economy.

By Chris Isidore, CNNMoney.com senior writer

March 5 2007: 4:44 PM EST

<br clear="all" />



<p>NEW YORK (CNNMoney.com) -- Lending to homeowners and buyers without good credit has suddenly become a very bad business - and possibly a very big problem for the U.S. economy as a whole.</p>

<p>The sector is known as subprime mortgages, which pumped $640 billion into the economy through facilitating home purchases and refinancings in 2006, according to trade publication <em>Inside B&C Lending</em>. That's nearly twice the level of this kind of lending seen as recently as 2003.</p>

....


<p>Some economists say that choking off more than $100 billion in home financing will cause problems for real estate and home prices overall by keeping some buyers out of the market and by forcing some current homeowners to sell or face foreclosure.</p>

<p>"People who a year ago could have purchased a house with a subprime mortgage aren't going to be able to purchase," said Paul Kasriel, chief economist with Northern Trust in Chicago. "Increased foreclosures will mean more inventory on a market that already has a glut of homes for sale."</p>

<p>Kasriel said the additional hit to real estate from the subprime meltdown is likely to mean serious problems for the economy overall.</p>

<p>"Housing has played a very large role in this expansion and one of the reasons it's played that role is there has been a change in the mortgage market," he said. "This has been a credit-induced housing boom that lifted other sectors of the economy and it's all in reverse now."</p>

<p>One watchdog group, the Center for Responsible Lending, forecast recently that 19 percent of subprime mortgages originated during the past two years will end in foreclosure. </p>

<p>"This rate ... exceeds the worst foreclosure experience in the modern mortgage market, which occurred during the 'Oil Patch' disaster of the 1980s," the group said in a report issued in December.</p>

<p>The group praised a call from federal regulators Friday for much <a href="http://money.cnn.com/2007/03/02/real_estate/mortgage_lenders.reut/index.htm?postversion=2007030212">tougher standards</a> for lenders making subprime loans. But the tougher standards will mean many borrowers will be cut off from financing, according to requests for public comment on the proposal.</p>

<p>The proposed new rules come after<strong> </strong>mortgage financing firm <a href="http://money.cnn.com/quote/quote.html?symb=FRE">Freddie Mac</a> (<a href="http://money.cnn.com/quote/chart/chart.html?symb=FRE">Charts</a>) said it would <a href="http://money.cnn.com/2007/02/27/real_estate/freddie_mac.reut/index.htm?postversion=2007022711">no longer buy</a> subprime loans on the secondary market that have a high likelihood of excessive payment shock and possible foreclosure. Freddie Mac's new guidelines, and the proposed federal rules, would require that a borrower qualify at the highest rate possible under adjustable-rate loans, a move that would leave many not able to qualify.</p>

<p>The proposed rules on new standards and the action by Freddie Mac are important since most subprime lenders package their loans into securities to sell in the secondary market in order to get additional funds to make further loans.</p>
 
<p>muzie: <em>"Most likely they will at least cut down their staff (of 7000), so that's at least a few jobs that'll be lost."</em></p>

<p>Good thread - I have been contemplating the potential job losses tied to NEW. Is your number of 7,000 reliable? Also, if you can answer, what is your source?</p>
 
<p>For free but limited information on NEW, you can check Hoovers website at <a href="http://www.hoovers.com/new-century-financial/--ID__53504--/free-co-factsheet.xhtml">http://www.hoovers.com/new-century-financial/--ID__53504--/free-co-factsheet.xhtml</a></p>

<p>They listed that that had 7,200 employees as of 2005. Surely, that number will be significantly be reduced in the years to come. I think someone recently posted an article where NEW had announced that it was going to layoff 300 employees.</p>
 
<p>They don't have 7200 employees in 2006 because they closed down Home123 which was their retail loan production. They probably have about 5000 now and maybe 1200 in Irvine. They have laid off 300 nationwide and about 125 so far in Irvine. I would imagine more are to come. </p>
 
NEW is facing "imminent" bankruptcy...and they are only laying off 300 (out of 7200 employees)? Is this overly optomistic, or will NEW drop the ball?
 
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