LOS ANGELES – Subprime mortgage lender New Century Financial Corp. filed Monday for Chapter 11 bankruptcy protection, and said it would fire 3,200 workers, or 54 percent of its work force, to better position the company for a possible sale.
Once the second-largest provider of subprime mortgages in the U.S. based on loan volume, New Century was the latest lender to fall on hard times amid a spike in mortgage defaults caused by borrowers unable to make payments.
More than two dozen subprime lenders have shut down in recent months and others are scrambling to stay in business.
New Century said it has agreed to sell its loan servicing business to Carrington Capital Management LLC and its affiliate for about $139 million, subject to the approval of the bankruptcy court.
"The decision to pursue the sale of the company's assets and operations through the bankruptcy process was a difficult but appropriate decision for our board to make," president and chief executive Brad A. Morrice said in a statement.
"This was a very hard step for me personally and clearly not the outcome I would have preferred," Morrice said.
CIT Group and Greenwich Capital Financial Products Inc. have agreed to provide up to $150 million in working capital to facilitate the reorganization process, the company said.
New Century has also agreed to sell certain loans and residual interest in some trusts to Greenwich Capital for $50 million.
New Century, based in Irvine, filed the bankruptcy action in U.S. Bankruptcy Court for the District of Delaware. The move had been expected for several weeks.
Last week, New Century said several of its lenders planned to sell their outstanding mortgage loans and use the proceeds to offset payment obligations by the company, while retaining the right to recover the difference.
The company has signed consent agreements with several states and received cease-and-desist orders from others in recent weeks.
The state agreements are intended to keep New Century from accepting new mortgage applications on grounds that it has violated state laws, including failing to fund mortgage loans after closing.