Four states ordered New Century to stop doing business

State regulators from Massachusetts, New Hampshire, New Jersey and New York have sent letters to New Century, asking the lender to stop business operations. The notices said New Century has violated state laws by failing to fund mortgages that closed and by not notifying authorities of its financial crisis. The lender said it is unable to satisfy its subsidiaries’ loan repurchase obligations and expects to receive cease-and-desist notices from other states, too. Regulators also asked New Century not to pay dividends and bonuses to its executives. Shares of New Century, which has already stopped originating new loans, dropped more than 20% to close at 67 cents on the over-the-counter Bulletin Board. What an ugly situation for New Century – and its employees, shareholders, and investors. So what, are they going to wait for all the states to ask them to stop business operations before they admit they’re finally, totally and unequivocably broke?

The mortgage lender also revealed that it has defaulted on a loan agreement with Barclays Bank PLC and is required to buy back $900 million’ worth of mortgage loans. This seems to go on forever – every two or three days New Century announces that yet another of its lenders has asked it to repay its obligations or refused to provide additional financing. They must have truly overstretched themselves.

New Century Delisted

Shares of New Century Financial Corp., until recently a leading subprime mortgage lender, were delisted from NYSE after it was announced that federal investigators have issued a subpoena for “certain documents”. Trading of company stock was halted on Monday, while the exchange was trying to evaluate the mortgage lender’s financial standing.

New Century has defaulted on its obligations to most of its lenders, all of which have cut financing in recent weeks and demanded debt repayment. Late in February, the company announced that federal prosecutors were undertaking a criminal probe into its accounting and stock trading practices, after it was disclosed that accounting errors led to underestimating of loan-repurchase risk and inadequate risk management at the company.

After dramatic drops in New Century’s share price and a number of shareholder lawsuits filed against the company, this is the most recent blow that may drive the lender closer to bankruptcy, something analysts have been anticipating for quite a while. New Century stock last traded at $1.66 before the New York Stock Exchange halted trading, down from a 52-week high of more than $50 in May. After all that’s happened in recent months, I don’t understand what hope is left that this lender will NOT file for bankruptcy and why are company officials attempting to do the obviously impossible – save a company with billions of debt that doesn’t have sufficient equity to repay them. Or perhaps they’re just pretending – after all it was announced that several of New Century’s top officials have recently sold most of the company shares they owned and raised hundreds of thousand in the meantime. No, they don’t seem to believe it will last much longer.

New Century also disclosed another “inadvertent” error in its earlier statements, where its obligation to Credit Suisse First Boston was estimated at $900 million instead of $1.4 billion. Looks like they’re so nervous about dealing with their situation at the moment, and so busy negotiating with their investors, that they’re starting to make mistakes. Another one could well prove fatal.