Posted by John_NorCal on 4/3/07 9:29am
Msg #183510
A Big One Bites The Dust, 3,200 Employees Fired ....
as New Century Files Bankruptcy
After weeks of disheartening prologue, New Century Financial Corp. has filed for Chapter 11 bankruptcy to become the largest subprime mortgage lender in history to collapse.
The Irvine, California-based company said that it will fire more than half of its staff – approximately 3,200 workers – and expects to sell most of its assets within 45 days, according to the Chapter 11 filing fin ederal court in Wilmington, Delaware.
Carrington Capital Management LLC has already agreed to purchase its mortgage billing and collections unit for $139 million, said New Century.
Founded in 1995 by former managers at Option One Mortgage, New Century rose during the boom years to become the top independent mortgage lender catering to subprime borrowers, with a market value of over $3.5 billion at the end of 2004.
However, like many other subprime lenders, New Century loosened underwriting standards to maintain revenue once the boom began to moderate with higher interest rates.
The results were predictable as poorly qualified homeowners began to lose their homes to foreclosure and irate investors consequently demanded that New Century buy back the suspect loans, cutting deeply into the lender’s cash resources.
Not only did company creditors begin to pull their money out of the sinking ship, federal prosecutors started a criminal probe into accounting errors and trading in securities at New Century.
Over a dozen states across the country have demanded that New Century halt operations after borrowers complained that their loans weren't being funded.
In an affidavit filed with the bankruptcy court, New Century financial adviser Holly Etlin said that the speedy sale of company assets could prove the only way of ``maximizing returns for stakeholders'' of New Century stock.
New Century suggested that the immediate firing of the 3,200 employees would ``better align the company's cost structure with the current operating environment and to properly size these businesses in preparation for possible sale.''
In the bankruptcy filings, New Century said it established a bonus plan to pay 1,300 employees from the company’s lending unit roughly $7.34 million to stay with the company as it prepared to be sold off into pieces.
The company also sought permission to pay $15 million owed to workers for regular wages by April 6.
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