Apr
3
A Big One Bites The Dust
April 3, 2007 |
Reading the Los Angeles Times (oh…why do I continue to torture myself!) the front page story about Subprime lender New Century filing bankruptcy, and fires 3,200 people…Ouch! thats gonna hurt.
In quoting the Times, “New Century Financial Corp., once the largest independent maker of mortgages to high-risk borrowers, sank into bankruptcy proceedings today, swamped by demands that it buy back defaulted loans.”
“Its fall epitomizes the collapse of the sub-prime lending business, which made $1.3 trillion in higher-cost mortgages over the past two years to shaky borrowers. In recent months, forced sales and outright shutdowns of lenders have plagued the industry — woes that threaten to depress the entire housing market.”
New Century originated $51.6 billion in mortgages last year. Folks that number is huge! thats a lot of loans. The article continues… Amid rising delinquencies and foreclosures, regulators and loan buyers have cracked down on sub-prime mortgage originators.
Now here is a real interesting personal observation to this entire story about New Century, once the largest independent maker of mortgages to high-risk borrowers (thats a really nice term for flake who doesn’t pay any of their bills, including the mortgage) the web begins to unravel as the very client’s New Century helped out with loan’s are now at the root of the fall of this company!
More from the Times, The sub-prime lending business, which made $1.3 trillion in higher-cost mortgages over the past two years to shaky borrowers. In recent months, forced sales and outright shutdowns of lenders have plagued the industry — woes that threaten to depress the entire housing market. Here in this last paragraph I have to add a tidbit…of course the woes are there…sub-prime loans don’t cause bankruptcy for individual homeowners… bad spending habits do.
New Century founders, mortgage industry veterans Robert K. Cole, Brad A. Morrice and Edward F. Gotschall, grew wealthy as the stock price rose, each taking home nearly $8.4 million in salary and bonuses from 2003 through 2005, and cashing in about $13 million in stock options apiece in 2005.
The sudden collapse of their company has hammered their personal fortunes, with each losing well over $50 million since last May 11, when New Century stock hit a recent high of $51.45. Delisted from the New York Stock Exchange, New Century shares were trading over the counter at $1.41 a share on March 27.
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It’s good to hear that the big guys actually took a bit of the hit, although I think the small guy will still be the one to cop the raw end of the prawn!
James, I agree, and I don’t think this one has played out yet with private lawsuits of cashing in stock options for millions of dollars while misleading other shareholders about the condition of the company. I’m sure they’ll be more to this story.