Subprime mortgage lender New Century Financial Corp. says it will tighten underwriting and disclosure standards in response to new guidelines from federal regulators.
New Century said it will also offer low-fee, 30- and 40-year fixed-rate loans to customers with adjustable-rate mortgages.
In the next few months, the company’s operating subsidiaries, New Century Mortgage Corp. and Home123 Corp., will tighten underwriting procedures for adjustable-rate loans made to “at-risk” borrowers. Loan officers are being instructed to use the fully indexed rate minus 1 percent as the qualifying rate for those borrowers, the company said.
New Century will also use a more rigorous process for verifying income information provided on stated income loans. The company said it will use a front-end confirmation early in the loan process “to assist applicants in better understanding the terms of their loan.”
In addition, New Century will introduce plain language disclosures the company says go beyond legal requirements to explain prepayment charges, interest-only features, adjustable-payment features, escrows for insurance and taxes.
The company has established two toll free numbers for borrowers who are having trouble making their loan payments: 1-800-509-8071 or 1-866-395-5880.
Existing customers with ARM and interest-only loans who qualify will be offered the option of refinancing into low-fee, 30-year or 40-year fixed-rate mortgages.
“In light of recent regulatory guidance and the changing interest rate and housing environment, we have reevaluated our programs and practices and developed enhanced policies and techniques to reinforce our goal of providing fair and informed access to credit,” said New Century’s president and chief executive officer, Brad Morrice, in a statement.
Morrice said that while the company believes its historical practices and programs have been sound, “we recognize that the changing environment warrants a fresh evaluation of our lending best practices so that we can best serve our customers, loan buyers and stockholders during this part of the real estate cycle.”
New Century reported mortgage loan production of $16.2 billion in the second quarter, a 20 percent increase from the same quarter a year ago. Subprime loans accounted for 86.9 percent of the company’s loan production during the quarter, and 54.6 percent of the company’s loans were refinance, rather than purchase loans.
The company, which is organized as a real estate investment trust, originates loans through 246 sales offices operating in 35 states and 33 regional processing centers operating in 19 states, and employs approximately 7,100.