New Century Terminates Freddie Mac Relationship; Bankruptcy Imminent
Signaling that a widely-expected bankruptcy filing is imminent, besieged subprime lender New Century Financial said late Wednesday that it has voluntarily terminated its eligibility to originate and service Freddie Mac-sponsored loans. As a result, the company will not be able to sell or service loans for Freddie Mac. The company had disclosed on March 20 that fellow GSE Fannie Mae had terminated its selling and servicing agreement with New Century. A source close to events taking place at the company told HW this morning that New Century officials decided to voluntarily terminate the agreement with Freddie. "If they didn't, Freddie would have," said one source, on condition of anonymity. "It was just a matter of time." New century officials did not specify who would be taking over Freddie-owned loans within its portfolio for servicing, and calls to Freddie Mac seeking comment were not returned by HW's press deadline. Additional sources have told HW that, along with severing its ties to the GSEs, the company is waiting for creditors to complete scheduled auctions of its loans prior to filing for bankruptcy protection or is negotiating "as-is" transfers of loans in exchange for indemnification from credit losses. "Fewer claims against the company, once it is in bankruptcy, means a greater chance New Century will meet its debt obligations to creditors," said one source, on HW's customary policy of anonymity. New Century also disclosed in its filing with the Securities and Exchange Commission yesterday that it had entered into consent orders with Idaho, Michigan and Wyoming barring the company from operating within the states. The company has already signed numerous consent orders in various states throughout the U.S., including California, and indicated it expects to receive additional cease & desist orders from other states in the days and weeks ahead. For more information, visit http://www.ncen.com.