New Century Financial Corp. has stopped funding loans after at least five creditors stopped financing the company’s operations, and another forced a repurchase of loans it originated.
In a Securities and Exchange Commission filing Thursday, the California-based subprime lender said it has only been able to fund a portion of its loans this week because of problems with creditors.
New Century announced last month that it would restate results for the first three quarters of 2006 because it failed to properly account for losses on bad loans it was forced to repurchase.
In another SEC filing, New Century said it is the subject of a criminal investigation by the U.S. Attorney’s Office for the Central District of California, which is looking into trading in New Century’s securities and accounting errors related to the company’s allowances for repurchase losses.
New Century also disclosed that it was hit with a lawsuit Feb. 12 that seeks class action status to represent stockholders who allegedly bought the company’s stock at inflated prices between April 7, 2006 and Feb. 7. Nine other suits of a similar nature had been filed by Feb. 20, the company said.
The New York Stock Exchange is also reviewing transactions in the company’s securities prior to the Feb. 7 announcement of the restatement process, the company said.
Today, company officials said an unnamed creditor put New Century on notice that it was exercising its rights to sell back loans it had financed for the company, before extending $265 million in new financing.
The new financing was secured by New Century’s mortgage loan portfolio and other assets, the company said. The unnamed creditor also agreed to refinance $710 million in loans currently financed by another creditor, New Century said.
New Century said it had received $150 million in margin calls from creditors. The company said it had satisfied $80 million of those obligations, with $70 million in margin calls from five lenders remaining outstanding.
New Century relies on 15 short-term repurchase agreements and aggregation credit facilities and an asset-backed commercial paper facility that collectively provide $13 billion of committed and $4.4 billion of uncommitted borrowing capacity to fund mortgage loan originations and purchases pending their pool and sale.
After loans are sold in the secondary market, investors often have the right to demand that originators repurchase them if they go into early payment default within 90 days or less.
“As a result of the Company’s current constrained funding capacity, the Company has elected to cease accepting loan applications from prospective borrowers effective immediately while the Company seeks to obtain additional funding capacity,” New Century said in the SEC filing. “The Company expects to resume accepting applications as soon as practicable, however, there can be no assurance that the Company will be able to resume accepting applications.”
New Century also announced the resignation of board member David Einhorn, a principal at hedge fund Greenlight Capital LLC, a New Century investor.
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