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New Century Essay

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This case looks at a company known as New Century and their relatively short but nonetheless remarkable journey as a mortgage loan company. New Century was founded in 1995 and offered mortgages to subprime borrowers. Then they pooled together those mortgages and divided them into tranches based on different levels of risk. The next part of the business model involved selling these pooled mortgages to investors, which New Century was able to do. Then the case discusses how New Century’s business model was destined for failure. New Century’s business model was ill equipped to deal with changes in the real estate market and interest rates. After more investigation, the case states the obvious lack of contingency planning by …show more content…

It went public in 1996 and was listed on NASDAQ. At the beginning, New Century Financial Corporation’s goal was to originate and sell subprime mortgage. Their business included generating, retaining, selling and servicing home mortgage loans for subprime borrowers whose risk profile did not qualify for a prim mortgage. New Century Financial Corporation then grew at a fast peace, expanding its product rang to included adjustable rate mortgage (ARMs), fix-rate mortgages, 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. The Wholesale Loan Division operated 33 centers in 19 U.S. state. New Century Financial Corporation used a network of almost 1000 account executives and 50,000 independent mortgage brokers to originate around 85% of the company’s loan. The division bought funded loans from other lenders as well. Moreover, New Century Financial Corporation maintained a web-based loan underwriting process called Fast Qual. The Retail Mortgage Loan Division operated 235 sales offices in 35 states and a telemarketing as well as the

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