Fitch Ratings said late Wednesday that it had downgraded New Century Mortgage Corporation's residential primary servicer rating for subprime product to RPS-four from RPS-three-plus, and placed the rating on Watch Negative. Fitch said its rating action reflected uncertainties over New Century's ability to maintain adequate funding and remain viable over the near term. The company recently disclosed in an SEC filing that if it is unable to obtain satisfactory amendments to and/or waivers of the covenants in its financing arrangements from a sufficient number of its lenders, or obtain alternative funding sources, its independent auditors will include an explanatory paragraph indicating that substantial doubt exists as to the company's ability to continue as a going concern.
Doubts over New Century's access to funding arose due to the company's inability to timely file its financial statements, as reported February 8 by Housing Wire. Fitch does not rate the credit and financial strength of New Century; however, Fitch noted that its servicer rating action reflected a strong concern that New Century will face difficulty funding its servicing operation going forward. An RPS-four rated servicer may not be acceptable for new residential mortgage-backed security (RMBS) transactions, unless additional support or structural features are incorporated. The Rating Watch Negative indicates that further downgrades are possible, depending upon the stability of the servicer's portfolio and financial condition and the company's ability to obtain satisfactory amendments to and/or waivers of the covenants in its financing arrangements from a sufficient number of its lenders, or obtain alternative funding. Fitch has 33 RMBS transactions that are either serviced or master serviced by New Century. All transactions at least one year old have had rating actions within the last twelve months, with no downgrades assigned during that time. For more information, visit http://www.fitchratings.com.
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