New Century files for Chapter 11 bankruptcy

By Jonathan Stempel

NEW YORK (Reuters) - New Century Financial Corp. filed for bankruptcy protection on Monday amid a surge in homeowner defaults, the biggest mortgage lender to collapse in the slumping U.S. housing market.

The Irvine, California-based company fired 3,200 employees, or 54 percent of its work force. It plans to sell most of its assets within 45 days through the Chapter 11 process.

New Century was the largest independent U.S. provider of "subprime" mortgages, or home loans to people with poor credit histories. More than 30 rivals have sold or closed similar operations in the past year.

The demise of New Century came less than two months after the company first disclosed problems with delinquent and defaulted loans. It stopped making loans last month, after having made nearly $60 billion in 2006.

"We are only at the very beginning of the problems facing subprime," said Sanford C. Bernstein & Co. analyst Brad Hintz. "This liquidity crisis is continuing."

New Century filed for protection from creditors with the U.S. bankruptcy court in Wilmington, Delaware.

It said it agreed to sell its loan servicing business to hedge fund Carrington Capital Management LLC for $139 million, and some loans and other assets to Royal Bank of Scotland Plc's Greenwich Capital Financial Products Inc. unit for $50 million.

"Without a prompt sale of the debtors' mortgage loan servicing business and loan origination platform, those businesses will not be viable and the value will be destroyed," New Century said in a court filing.

New Century also lined up $150 million of financing from CIT Group Inc. and Greenwich Capital to keep it operating while in bankruptcy.

In a statement, Chief Executive Brad Morrice said selling assets is "a very hard step for me personally and clearly not the outcome I would have preferred."

He said it was necessary "given the sudden and significant challenges facing our industry and New Century specifically."

Accredited Home Lenders Holding Co., Fremont General Corp. and NovaStar Financial Inc. are among other subprime lenders struggling with rising defaults.

LAX STANDARDS

U.S. homeowner delinquencies and defaults surged after many subprime lenders eased their lending standards too far.

Some of the lenders offered low initial rates, which later jumped beyond what customers could afford, or even made loans that customers could not afford in the first place.