New Century Faces More Credit Crisis
As one of the largest subprime mortgage lenders in the nation, New Century escaped its credit troubles a decade ago when US Bancorp decided to give the company fresh capital. Unfortunately, their run recently ran out as brokerage firms and Wall Street banks have decided to take back the billion dollar credit line it gave a couple of months ago.
According to New Century, their lenders have frozen credit lines and are demanding that they buy back almost $8.4 billion in mortgage loans. These loans were issued using money borrowed from the banks and not from New Century’s pocket.
The last few days saw New Century in negotiations with several lenders about debtor-in-possession financing that is supposed to be included in the filing for bankruptcy. The lending company would then be able to sell its assets or even itself within the terms of the bankruptcy filing.
New Century has suffered much in the wake of the current foreclosure crisis, experiencing almost 90 percent fall in their stock price. If Morgan Stanley did not step in and offered a generous financing package worth $975 million, the company might have drowned.
The most surprising thing about this unfortunate New Century situation is the way the banks pulled out its previous assistance so fast that the lending company did not realize that they have been abandoned. Most probably, the decision of these banks to do so came from the increasing number of mortgage defaults observed in the previous six months.
As the foreclosure crisis deepens, it can be expected that more lending companies will most likely suffer the same fate as New Century. These companies should hope that efforts made by the government to intervene will somehow pay off and provide them with a way out of this very sticky mess.
If you would like to enjoy more foreclosure news and information, simply browse Foreclosed Properties Data.
