New Century Case
1.1) Brief of the New Century Financial Corporation Case
Over the past two decades, nearly half of the homeowners obtained their loans through subprime mortgage lending. Subprime mortgages were becoming increasingly ordinary in daily life of business for homeowners over the past two decades. However, numerous lending institutions provided home loans to borrowers who have high credit risks and are not be able to payback the loans. New Century, which is the second largest subprime lender in the country, prospered over the last decade. However, its sudden collapse following the restatement of company’s financial statements, contributed significantly to the subsequent events that eventually lead to the plunge of global financial systems in 2008. Along with New Century, Bear Stern, Lehman Brothers and Merrill Lynch are major players, which are brought down by the subprime mortgages fiasco. This case briefly provided us the meltdown of the subprime mortgages market and how it eventually leaded to an unprecedented global financial crisis.
Bob Cole, Ed Cotschall, and brad Morrice found New Century in 1995 and the companies focused on the subprime sector of the mortgage market. New Century’s subprime mortgage business experienced significant growth since its inception in 1995 due to a decreasing mortgage interest rate, the deregulation of the lending industry, and a booming housing market in California. Starting 2006, Rapidly delinquencies on the loan payment weakened New Century’s financial condition. In 2007, management informed the board and audit committee that the company had understated its loan repurchase loss reserve for three quarterly reporting periods of 2006 due to “inadvertent oversight.” On April 2, 2007, New Century filed for bankruptcy in a U.S. federal court. KPMG served New Century’s independent auditor since it inception in 1995. The federal bankruptcy examiner performed extensive investigations of New Century’s quarterly financial statements and
Over the past two decades, nearly half of the homeowners obtained their loans through subprime mortgage lending. Subprime mortgages were becoming increasingly ordinary in daily life of business for homeowners over the past two decades. However, numerous lending institutions provided home loans to borrowers who have high credit risks and are not be able to payback the loans. New Century, which is the second largest subprime lender in the country, prospered over the last decade. However, its sudden collapse following the restatement of company’s financial statements, contributed significantly to the subsequent events that eventually lead to the plunge of global financial systems in 2008. Along with New Century, Bear Stern, Lehman Brothers and Merrill Lynch are major players, which are brought down by the subprime mortgages fiasco. This case briefly provided us the meltdown of the subprime mortgages market and how it eventually leaded to an unprecedented global financial crisis.
Bob Cole, Ed Cotschall, and brad Morrice found New Century in 1995 and the companies focused on the subprime sector of the mortgage market. New Century’s subprime mortgage business experienced significant growth since its inception in 1995 due to a decreasing mortgage interest rate, the deregulation of the lending industry, and a booming housing market in California. Starting 2006, Rapidly delinquencies on the loan payment weakened New Century’s financial condition. In 2007, management informed the board and audit committee that the company had understated its loan repurchase loss reserve for three quarterly reporting periods of 2006 due to “inadvertent oversight.” On April 2, 2007, New Century filed for bankruptcy in a U.S. federal court. KPMG served New Century’s independent auditor since it inception in 1995. The federal bankruptcy examiner performed extensive investigations of New Century’s quarterly financial statements and