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New Century to restate earnings

The `sub-prime' lender says it failed to properly record losses when it was forced to buy back mortgages last year.

February 08, 2007|E. Scott Reckard | Times Staff Writer

In another big mortgage-industry setback, New Century Financial Corp. said Wednesday that it would reduce the profit it had reported for the first nine months of 2006 and record a surprise loss for the final quarter because it had understated the damage caused by a recent rash of soured loans.

Irvine-based New Century is the second-largest lender after Wells Fargo & Co. in the so-called sub-prime mortgage market, for borrowers with credit flaws or other high-risk characteristics. It postponed release of its fourth-quarter earnings, which had been scheduled for today, to an "undetermined future date" and didn't estimate how big its loss would be.

New Century put out the news after the stock market closed. Its shares gained 13 cents to end at $30.16 in regular trading. After hours, the stock plunged nearly 16% to $25.46.

The company said it had failed to account properly for losses sustained when loan buyers forced it to buy back mortgages that quickly went into default. The rising volume of such repurchases has plagued the sub-prime industry recently and drove Ownit Mortgage Solutions Inc. of Agoura Hills, another large sub-prime lender, into bankruptcy proceedings.

New Century said it also would write down the value of the residual interests it retains in loans that have been used to create the mortgage-backed securities that have found eager buyers around the world.

As the housing market cooled over the last year and competition intensified for a shrinking number of mortgage borrowers, some lenders provided loans on overly easy terms to unqualified buyers, analysts have said. Some of these buyers, particularly those who purchased homes for the first time with low or no down payments, are believed to have stopped paying their mortgages when housing prices declined.

For the first three quarters last year, New Century had reported earnings of $268 million, or $4.72 a share, down from $297 million, or $5.10, in the comparable period of 2005. It said it hoped to file amended reports by March 1.

Wall Street analysts had expected a profit of 34 cents to $1.64 a share for the fourth quarter, with an average of $1.08, down from $2 a share a year earlier.


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