Probe Faults New Century Management

Senior management at New Century Financial Corp. "largely rejected or ignored" staff recommendations to tighten credit standards in 2004, which evidentially lead to a "tsunami of impaired and defaulted mortgages" and the subprime lender's bankruptcy, according to a court-appointed investigator. "The increasingly risky nature of New Century's loan originations created a ticking time bomb that detonated in 2007," according to 550-page report filed in a U.S. Bankruptcy Court by investigator Michael Missal. The Irvine, Calif.-based company was the second-largest subprime lender when it filed for bankruptcy in April 2007. The examiner found numerous accounting problems and faulted KPMG, New Century's independent auditor, for allowing the publicly traded company to reduce its repurchase reserve in 2006 when it was being "flooded with repurchase claims" from investors. "New Century understated its repurchase reserve by as much as 1000% in the third quarter of 2006, reported a profit of $63.5 million ...when it should have reported a loss," the Missal report says. A KPMG spokesman said the firm "strongly" disagrees with the report's conclusions. A New Century representative said the submission of the report will allow the bankruptcy process to continue, and "we can take the next steps of confirming the liquidation plan."