New Century
New Century Case Analysis
1. What appeared to be New Century’s strategic objectives? Describe and evaluate the business model the company had adopted to achieve these objectives.
New Century Financial Corporation was founded in 1995 went public in 1996 and was also listed on NASDAQ. New Century’s primary goal was to originate and sell subprime mortgages. The main activities of the company included generating, retaining, selling, and servicing home mortgage loans for subprime borrowers who couldn’t get finance from other sources. By 2006 New Century expanded its product range to include fixed-rate mortgages, adjustable rate mortgages (ARMs), hybrid mortgages, and interest-only (IO) mortgages. The products were from the two Company’s divisions of Wholesale Loan Division and Retail Mortgage Loan Division, which was different in terms of sales channel (indirect and direct). The corporation employed almost 1,000 account executives & 50,000independent mortgage brokers within its Wholesale Loan Division and it operated 235 sales offices within Retail Mortgage Loan Division.
It was able to generate significant sales volume and achieve tremendous growth with CAGR of 70%percent from 2000- 2004 due to its ability to respond to increasing demand on such loans. Despite increasing competition in the subprime market, the Company still held strong position due to its low cost loan originators.
Their major strategic objectives were to consistently achieve strong performance both in TRS and REIT. Their key focus was to lower cost and increase productivity. They did this by broadening the mortgage products and services through appropriate delivery channels as mentioned above and by improving Product mix to optimize execution.
Below are the major operations of New Century financial Corporation.
Whole loan sales:
New Century sold mortgages in loan pools to investors such as Goldman Sachs, JP Morgan Chase, etc at a premium value above the par because of high interest rates
1. What appeared to be New Century’s strategic objectives? Describe and evaluate the business model the company had adopted to achieve these objectives.
New Century Financial Corporation was founded in 1995 went public in 1996 and was also listed on NASDAQ. New Century’s primary goal was to originate and sell subprime mortgages. The main activities of the company included generating, retaining, selling, and servicing home mortgage loans for subprime borrowers who couldn’t get finance from other sources. By 2006 New Century expanded its product range to include fixed-rate mortgages, adjustable rate mortgages (ARMs), hybrid mortgages, and interest-only (IO) mortgages. The products were from the two Company’s divisions of Wholesale Loan Division and Retail Mortgage Loan Division, which was different in terms of sales channel (indirect and direct). The corporation employed almost 1,000 account executives & 50,000independent mortgage brokers within its Wholesale Loan Division and it operated 235 sales offices within Retail Mortgage Loan Division.
It was able to generate significant sales volume and achieve tremendous growth with CAGR of 70%percent from 2000- 2004 due to its ability to respond to increasing demand on such loans. Despite increasing competition in the subprime market, the Company still held strong position due to its low cost loan originators.
Their major strategic objectives were to consistently achieve strong performance both in TRS and REIT. Their key focus was to lower cost and increase productivity. They did this by broadening the mortgage products and services through appropriate delivery channels as mentioned above and by improving Product mix to optimize execution.
Below are the major operations of New Century financial Corporation.
Whole loan sales:
New Century sold mortgages in loan pools to investors such as Goldman Sachs, JP Morgan Chase, etc at a premium value above the par because of high interest rates