New Century Mortgages and Bankruptcy

I love the business news articles on the financial deterioration of New Century Financial Corp. Just today, Reuters reports that New Century may have to repurchase over $8 Billion worth of loans — despite the fact that it is questionable that New Century has the ability to do so. Reuters mentions this as the source of concerns that New Century might file for Bankruptcy. (So, can someone explain to me why Morgan Stanley is agreeing to lend New Century $265 million? How do I get a deal like that?)

What Reuters doesn’t mention is that if New Century cannot repurchase those loans, then someone — like pension plans, insurance companies and other institutional investors — is going to be stuck with $8.5 BILLION in underperforming assets. That strikes me as being worthy of mention.

Of course, from where I sit, the collapse of New Century and others, along with Countrywide’s new restrictions on sub-prime lending, is going to make it increasingly more difficult if not impossible for Chapter 13 Bankruptcy clients to refinance their way out of a reorganization plan or for foreclosure defendants to avoid a bankruptcy filing altogether.

What remains to be seen is how the sub-prime mortgage meltdown is going to effect property values, the securitization markets, overall access to credit and the security of institutional investors’ portfolios. Evidently, I am missing something; because with the exception of a recent article in the New York Times the financial press does not seem to be addressing these issues.


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