Subprime lender files for bankruptcy

LOS ANGELES — New Century Financial Corp., once the nation's second-largest provider of home loans to high-risk borrowers, filed for bankruptcy protection on Monday, the victim of its own financial missteps as well as pressures felt by its rival lenders.

New Century immediately fired 3,200 workers — more than half its work force — and said it intends to sell off its major assets.

"The Chapter 11 process provides the best means for selling our servicing and loan origination operations to financially sound parties," president and chief executive Brad A. Morrice said in a statement.

"It is our hope that potential buyers will be in a stronger position than we are to employ many of our associates on an ongoing basis," he said.

The company made the move after exploring a variety of possible ways to stay in business, he said.

New Century was the latest so-called subprime lender to fall on hard times amid a spike in mortgage defaults caused by borrowers unable to make payments. More than two dozen subprime lenders have shut down in recent months and others are scrambling to stay in business.

Subprime loans target borrowers with low credit scores. The mortgages carry relatively high interest rates but can also offer low initial payments.

"New Century's failure raises the very real risk that the problems facing the subprime sector will spread into the broader mortgage market," said Octavio Marenzi, CEO of Celent, a Boston-based financial research and consulting firm.

"Relatively lax lending standards were by no means limited to subprime lenders, and problems could easily spread to the broader banking sector," he said

New Century said it had agreed to sell its loan servicing business to Carrington Capital Management LLC and its affiliate for about $139 million, subject to the approval of the bankruptcy court.

CIT Group and Greenwich Capital Financial Products Inc. have agreed to provide up to $150 million in working capital to facilitate the reorganization process, the company said.

New Century has also agreed to sell certain loans and residual interest in some trusts to Greenwich Capital for $50 million.

New Century, based in Irvine, filed for Chapter 11 protection in U.S. Bankruptcy Court for the District of Delaware. The move had been expected for several weeks.

"This was a very hard step for me personally and clearly not the outcome I would have preferred," Morrice said.