Big Subprime Lender Files for Bankruptcy

Subprime mortgage giant New Century Financial Group has filed for bankruptcy. The company loaned tens of billions of dollars to people with weak credit. When the housing market went flat those homeowners couldn't pay their mortgages.

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In business news, risky mortgages bankrupt a major lender.

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MONTAGNE: It loaned tens of billions of dollars to homebuyers with weak credit. Now, New Century Financial Corporation has filed for bankruptcy. The company ran into trouble when a growing number of those borrowers were unable to pay their mortgages.

As NPR's Scott Horsley reports.

SCOTT HORSLEY: New Century's CEO says bankruptcy was not the outcome he would have chosen, but Brad Morrice called it the best available option given the sudden and significant challenges now facing the subprime mortgage industry. That industry had boomed in recent years by using Wall Street money to make risky home loans, confident that rising home prices would paper over any problems.

With home prices now flat or falling, though, more borrowers are defaulting on their mortgages. David Olson of the research firm Wholesale Access says Wall Street investors have lost their appetite for the loans and want companies like New Century to buy them back.

Mr. DAVID OLSON (Home Equity Industry Analyst, Wholesale Access): A lot of these loans started to have early defaults and they didn't have the cash to buy them out. So that was the main impetus for the disintegration of this industry.

HORSLEY: More than two dozen other subprime lenders have shut down in recent months. Big banks, like HSBC and Citigroup, also made subprime home loans but Olson expects those will stay afloat.

Mr. OLSON: I think the large banks affiliated companies were much more conservative so they're not having the problem nearly as bad and they're going to survive.

HORSLEY: Other subprime lenders are treading water. San Diego-based Accredited Home Lenders said yesterday it secured a $230 million loan from a San Francisco hedge fund.

Scott Horsley, NPR News, San Diego.

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