Today's financial media was busy reporting the news about Irvine-based New Century Financial and rumors, analyst predictions and Wall Street buzz that they will likely go BK in the next few days. While we do not know for sure, it is clear that the company's challenges will reverberate through the Orange County economy and job market and also through the halls of Congress.
In Washington, House Financial Services Chairman Barney Frank has long held views critical of one of New Century's business lines: sub prime mortgages. (Fullerton GOP Rep. Ed Royce and Irvine Rep. John Campbell are both members of this committee). These mortgages, made to lenders with less than "good" credit are called both non-prime and sub-prime, depending on the lender involved. Either way, the transaction typically involves a lender easing traditional mortgage qualification standards in exchange for a rate as much as 2-3 points higher than a typical applicant with good income and credit history. The numbers work as long as a certain percentage of lenders continue making payments. It seems from early reports, New Century has a higher than normal percantage approach default.