New Century Returns to the Loan Servicing Business
There are those that wish they could start over with a clean slate, keeping only the best of what had happened before.
New Century Financial Corp. here had the opportunity to do that with its servicing portfolio. It sold the portfolio in 2001 because of financial reasons.
Approximately one year later, it was able to start the platform up again and built it better and stronger.
Like many other firms in the subprime industry, it suffered from a capital crunch beginning in the fall of 1998.
The sale, said Brad Morrice, vice chairman, president and chief operating officer of New Century, put cash into the company's bank account. Furthermore, transferring the servicing advance obligations relieved a "meaningful debt burden" for the company. He added that New Century was not confident it could obtain financing to help take care of those advancing obligations as they grew.
The sale also allowed New Century to restructure a fairly significant outstanding debt obligation it had to Salomon Brothers that Mr. Morrice described as a "black cloud" over the company. This is because it was structured as 28-day repo debt.
The servicing transaction, where the platform was sold to Ocwen Financial, West Palm Beach, Fla., enabled New Century to have that rewritten to being term debt.
The sale, Mr. Morrice declared, was "heartbreaking to do from an operating point of view and from a people point of view."
New Century did the transaction with an eye towards re-entering the servicing business when it was financially able to. It kept Richard Cimino, who had headed up the platform, under contract because the company did not want to lose him.
Other top servicing managers were also kept aboard in part because New Century had outstanding securitizations that needed to be monitored.
Less than a year after the sale was completed, in February 2002, New Century announced it was ready to begin to restart its business.
Mr. Morrice said the ability to begin anew was a tremendous opportunity that rarely came along. While the company had to start from scratch on the technology side, from the personnel standpoint, he said many of those who were on staff were excited to have the opportunity to return to New Century.
From the time New Century first announced it was selling the platform through the final transfer, it took over six months. This long period of limbo was because of the purchaser assuming a number of other servicing operations as well.
Still, Mr. Morrice noted, the loan performance actually improved during that period. He attributed that to the "pride" of the people who worked on the platform. He credited that to Mr. Cimino, who kept the workers focused on business and solidified the team.
So when New Century was ready to go back into the servicing business "the phones rang off the hook" with former employees willing to return.
The teamwork aspect is important. He likened it to a basketball team with five players on the court who know each other. This group is able to compete more effectively.
But besides the best of the former employees coming back to New Century, Mr. Cimino also got some "new blood" that had new ideas that could help to further improve performance. The staff is roughly split 50-50 between the two.
Besides having a blank piece of paper to work with, New Century had a healthy checkbook to start regrowing that business.
On the technology side, New Century had been an Alltel shop. When it restarted the platform, it switched to MortgageServ.
Mr. Morrice called it a more modern, more flexible system. There was some learning that needed to take place.
Right now, New Century services $11.6 billion from 68,464 loans. It has 180 employees in the servicing department.
The total includes $3.4 billion of loans held for sale and $3.1 billion of loans serviced on an interim basis.
The reason for the large amount of interim servicing, Mr. Morrice said, is because the company has not received all of its servicer ratings.
It is approved as a Fannie/Freddie servicer so it can keep all of the rights generated from those securitizations.
When it gets those servicing ratings, it would be able to sell whole loans on a servicing-retained basis.
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