| New Century, Biggest Subprime Casualty, Goes Bankrupt (Update4)
April 2 (Bloomberg) -- New Century Financial Corp., overwhelmed by rising defaults from borrowers with poor credit records, became the largest subprime mortgage lender ever to fail as it filed for bankruptcy today. New Century plans to sell most of its assets within 45 days, said the Chapter 11 filing in federal court in Wilmington, Delaware. About 3,200 people, more than half the workforce at the Irvine, California-based company, will be fired. New Century said it already agreed to sell its mortgage billing and collections unit to Carrington Capital Management LLC for $139 million. The company rode the U.S. housing boom to become the largest independent mortgage lender to subprime borrowers, only to collapse as interest rates rose and home prices fell. New Century's market value soared to more than $3.5 billion in December 2004, and last year it made about $60 billion in loans.
Loan Comparison: Interest Only Home Equity Loans Versus Balloon ...
What is an interest only home equity loan? This is a loan where the principal borrowed is not paid back each month only the interest is repaid. The principal borrowed may be due in 10, 15 or 20 years. A borrower may decrease the amount of principal due in the future by making payments on the principal. Interest only mortgages may be adjustable rate mortgages (ARM) or fixed rate mortgages. A fixed rate mortgage will have a set payment for the period of the loan. ARM mortgages will have a fixed rate initially for a six-month period, and then the rate will increase or decrease based on an index, prime rate or five-year treasury rate. A balloon second mortgage is a short-term mortgage with a fixed rate of interest. Balloon mortgages require repayment of principal and interest.
Predatory Lenders and California’s Foreclosure Crisis
Predatory mortgage lending drains family savings, eliminates the benefits of homeownership for a growing number of Americans, and often leads to foreclosure. Recent studies estimate that predatory market lending costs Americans $9.1 billion each year. The Center for Responsible Lending (CRL) recently issued a report projecting a failure rate of as high as 21.4% for 2006 sub-prime loans in California, a level exceeded only by Nevada and Washington, D.C. Thousands of California consumers that were suckered into these agreements with initially fixed interest rates are now seeing their loans reset to a much higher level. Recent data compiled by DataQuick Information Systems in January 2007, indicates that default notices jumped 145% in the last three months of 2006, accelerating a trend that began in late 2005 as home sales started to cool.
|
