New Century Financial Corp. disclosed in filings with the Securities and Exchange Commission March 13 that it received a grand-jury subpoena from the U.S. Attorney's Office for the Central District of California seeking certain documents and that the Securities and Exchange Commission has launched a preliminary investigation into its finances. Additionally, trading in New Century stock was suspended by the New York Stock Exchange, which announced it was beginning the process to delist the stock permanently.
New Century, the second largest U.S. issuer of subprime mortgages, disclosed March 12 that the banks from which it gets its money had notified it of their intent to cut off all short-term funding, bringing the fallen lender one step closer to a possible bankruptcy filing or liquidation.
The banks include Bank of America, Barclays, Citigroup, Credit Suisse First Boston, Goldman Sachs, IXIS and Morgan Stanley. All have refused to provide the short-term financing New Century needs to meet loan repurchase obligations.
If all of the company's lenders call New Century to repurchase loans upon which it has defaulted, the company would be on the hook for $8.4 billion.
"The company and its subsidiaries do not have sufficient liquidity to satisfy their outstanding obligations under the company's existing financing arrangements," stated New Century in an 8-K filing with the Securities and Exchange Commission.
New Century, based in Irvine, Calif., specializes in mortgages given to people with weak credit histories and insufficient income and assets to qualify for a conventional mortgage.
Another subprime lender, Accredited Home Lenders Holding Corp., said on March 13 that it is pursuing additional sources of funding to cover "margin calls" from its short-term lenders. Accredited said it had no guarantees that it would be able to find that funding.
The company said it was exploring cost cutting options, including further workforce reductions. It also disclosed that is is further delaying the filing of its annual report with the SEC as it evaluates impairments associated with its acquisition of Ames Investment Corp. last October.