Lenders to halt New Century financing

New Century Financial Corp, the largest independent US subprime mortgage lender, said on Monday its lenders plan to halt financing, pushing the company closer to bankruptcy. After the market opened, the New York Stock Exchange delayed trading in the company's shares, citing a pending news announcement.
New Century shares already had plunged 48 percent before regular trading on the NYSE, dropping to $1.66. New Century shares could be suspended by the NYSE, a person familiar with the situation said. The NYSE declined to comment.
New Century of Irvine, California, said it could be forced to repurchase about $8.4 billion in loans, if lenders accelerated all of its obligations. Key lenders include Morgan Stanley, Citigroup and Bank of America. New Century shares, down 89 percent this month, have been hammered by a barrage of negative announcements, including that it would stop making new loans and was the target of a criminal investigation.
Over the past several weeks, subprime shares have been battered over a rising tide of late payments by borrowers. That trend continued on Monday, lopping 13.6 percent off Fremont General Corp's stock and 9 percent off NovaStar Financial shares.
Robert Froehlich, chief investment strategist at DWS Scudder, said a crimp in subprime lending could hurt US housing demand. "Because of the virtual collapse of mortgage lending standards over the past couple of years in the US, rapid growth in sub-prime lending has accounted for much of the incremental home purchase demand in recent years," Froehlich said. "Removing this segment will soften already slowing demand."
New Century's struggles are part of a wider meltdown among lenders to less credit-worthy homebuyers, which has seen the sector struggle amid soaring default rates. "The company and it subsidiaries do not have sufficient liquidity to satisfy their outstanding repurchase obligations under existing financial arrangements," New Century said in a regulatory filing.
New Century also said there's no guarantee that it will get adequate financing to meet its obligations. If the company isn't able to satisfy repurchase obligations, lenders could liquidate related mortgage loans.
New Century would be on the hook for any difference between the liquidation amount and the contractual amount of the loans. "The company and its subsidiaries may not have sufficient resources to satisfy any such deficiency," New Century said.
That might set the stage for a bankruptcy filing, if a white knight financing deal doesn't materialise. New Century said that it had received two letters from Bank of America, each dated Thursday, saying that certain New Century subsidiaries had failed to satisfy margin calls, among other issues. Citigroup and Barclays Bank Plc provided similar notices, New Century said.
Investment bank Morgan Stanley, which last week agreed to lend $265 million to New Century, could force the subprime lender to repurchase up to $2.5 billion in loans, according to the filing. New Century now has less than $60 million in cash on hand, which also puts it in violation of many of its loan covenants. Also on Monday, analysts at investment bank UBS downgraded their rating on New Century's shares to "reduce," Marketwatch reported.