New Century to Restate 1-3Q Earnings

New Century Financial Corp., a nonprime mortgage lender structured as a real estate investment trust, says it is restating its earnings for each of the first three quarters of 2006 because it incorrectly applied SFAS 140 involving the repurchase of loans.New Century also said that, because of repurchases and adjustments to the valuation of residuals, it expects to take a fourth-quarter loss. The Irvine, Calif.-based company said when it repurchases a loan, the loan is added to its balance sheet as a mortgage loan held for sale at its estimated fair market value. The company's repurchase reserve is reduced by the amount the repurchase price exceeds fair market value. In the second and third quarters, New Century said it did not include the expected discount upon disposition of loans when estimating its allowance for loan repurchase losses. Furthermore, in determining the volume of repurchases to be included in the reserve calculation for the first three quarters of 2006, New Century did not properly anticipate the growing amount of repurchase requests. This was compounded by the increasing length of time between the original sale and the repurchase request. New Century said it expects to file amended 10-Qs for the three quarters by March 1. Its year-end earnings announcement has been postponed indefinitely. New Century's common stock, already trading near the low end of its 52-week range, crashed through that barrier, and was down $8.28 to $21.88 as of late morning on Feb. 8.