New Century off Freddie Mac list
New Century Financial Corp., short on cash and battling a wave of defaults by borrowers, said it wouldn’t sell any mortgages to Freddie Mac, the second-biggest provider of money for U.S. home loans.
The Irvine-based company also said it signed agreements with Idaho, Iowa, Michigan and Wyoming to stop lending, according to a regulatory filing Wednesday. New Century has been told by more than a dozen states to halt operations after consumers complained that their loans weren’t funded.
Banks have cut off credit lines for New Century, the second-biggest sub-prime mortgage lender in the U.S., while state and federal investigators are probing lending practices, accounting and securities trades tied to the company.
Fannie Mae, the biggest source of money for U.S. mortgages, said this month that it wouldn’t buy any more New Century loans.
Analysts at Merrill Lynch & Co. and Jefferies & Co. renewed predictions that New Century would file for bankruptcy protection.
“The chances of a last-minute bailout are extremely limited,” Jefferies analyst Richard Shane Jr. said in a note to clients titled “Unsafe at Any Price.” Demands from creditors “and criminal and civil issues will cause potential white knights to avoid this situation,” said Shane, who rates the shares “underperform.”
New Century is “voluntarily terminating its eligibility with Freddie Mac,” the company’s filing said. New Century is “no longer able to sell mortgage loans directly to Freddie Mac or act as the primary servicer of any mortgage loans for Freddie Mac.”
Servicing involves billing and collections for mortgages that have been sold to another company or investors.
McLean, Va.-based Freddie Mac, formerly known as the Federal Home Loan Mortgage Corp., is a federally chartered, stockholder-owned company designed to expand homeownership.
Freddie Mac spokesman Michael Cosgrove said his company didn’t buy any of New Century’s loans while the company was on the list of approved mortgage lenders. He referred questions about why New Century made the announcement to the company. A New Century spokeswoman didn’t have an immediate comment.
Shares of New Century fell 30 cents to $1.11 in over-the-counter trading. They’ve lost 96% of their value this year.
Separately, Ohio Atty. Gen. Marc Dann said in a statement that New Century had agreed to halt all foreclosures, pending a review of whether they complied with state law.
The company also confirmed that some of its lenders were trying to recoup their money by auctioning the loans that served as collateral for the credit lines.
More than 30 lenders have halted operations, filed for bankruptcy protection or sought buyers in the last 12 months as defaults on sub-prime mortgages have surged. Sub-prime loans are made to borrowers with poor credit or high debt burdens.