Credit & Debt: Subprime Mortgage "Rot" Claims New Century Lending

The financiers behind subprime lender New Century are turning off the spigot after the company said it was increasingly unable to make good on its own loan obligations:

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 (MS.N: Quote, Profile , Research), which last week agreed to lend $265 million to Irvine, California-based New Century, could force the subprime lender to repurchase up to $2.5 billion in loans, according to the filing.

CNN Money notes that the fall of New Century has potentially serious financial consequences for its many backers:

The company's SEC filing could shake up the entire financial sector. It mentioned financing agreements with many top Wall Street firms, including Morgan Stanley (Charts), Citigroup (Charts), Barclays Bank (Charts), Bank of America (Charts), and Credit Suisse First Boston Mortgage Capital, a unit of Credit Suisse Group (Charts), as well as the mortgage arm of Goldman Sachs (Charts). Shares of Goldman and Morgan Stanley each lost about 1 percent in early trading. Citigroup and Bank of America were narrowly higher at the open..."We know they didn't get their $8 billion by holding a bake sale. We knew it would touch other financial institutions; now we'll see how," said Art Hogan, chief market analyst at Jefferies & Co., about the impact New Century would have on the broader financial sector.

Despite the claims of economists, the Fed, and the business media, it seems that the market failure of the subprime sector is indeed spreading its "contaigon" not only to "grey" mortgage areas, but also to the backbone financial support necessary to get these companies off the ground in the first place. It's elegant in the irony, really--defaults and foreclosures because the homeowner can't make good on their debts to the lender, and possible bankruptcy because the lender can't make good on its debt to its backers.

Time will tell as to who ends up getting the easier ride out of debt hell, however.

Posted at March 12, 2007 12:13 PM

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The financiers behind subprime lender New Century are turning off the spigot after the company said it was increasingly unable to make good on its own loan obligations: 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 (MS.N: Quote, Profile , Research), which last week agreed to lend $265 million to Irvine, California-based New Century, could force the subprime lender to repurchase up to $2.5 billion in loans, according to the filing. CNN Money notes that the fall of New Century has potentially serious financial consequences for its many backers: The company's SEC filing could shake up the entire financial sector. It mentioned financing agreements with many top Wall Street firms, including Morgan Stanley (Charts), Citigroup (Charts), Barclays Bank (Charts), Bank of America (Charts), and Credit Suisse First Boston Mortgage Capital, a unit of Credit Suisse Group (Charts), as well as the mortgage arm of Goldman Sachs (Charts). Shares of Goldman and Morgan Stanley each lost about 1 percent in early trading. Citigroup and Bank of America were narrowly higher at the open..."We know they didn't get their $8 billion by holding a bake sale. We knew it would touch other financial institutions; now we'll see how," said Art Hogan, chief market analyst at Jefferies & Co., about the impact New Century would have on the broader financial sector. Despite the claims of economists, the Fed, and the business media, it seems that the market failure of the subprime sector is indeed spreading its "contaigon" not only to "grey" mortgage areas, but also to the backbone financial support necessary to get these companies off the ground in the first place. It's elegant in the irony, really--defaults and foreclosures because the homeowner can't make good on their debts to the lender, and possible bankruptcy because the lender can't make good on its debt to its backers. Time will tell as to who ends up getting the easier ride out of debt hell, however.