New Century

3710 Words Jan 23rd, 2013 15 Pages
New Century Case Analysis

1. What appeared to be New Century’s strategic objectives? Describe and evaluate the business model the company had adopted to achieve these objectives.

New Century Financial Corporation was founded in 1995 went public in 1996 and was also listed on NASDAQ. New Century’s primary goal was to originate and sell subprime mortgages. The main activities of the company included generating, retaining, selling, and servicing home mortgage loans for subprime borrowers who couldn’t get finance from other sources. By 2006 New Century expanded its product range to include fixed-rate mortgages, adjustable rate mortgages (ARMs), hybrid mortgages, and interest-only (IO) mortgages. The products were from the two Company’s
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On the contrary, a firm belief existed in the company that external auditors showed their unmistakable disdain for New Century Financial even when loan quality issues were revealed. As audit examiner stated ³Senior Management may have abdicated its responsibility to manage the day-to-day affairs´ particularly with respect to its failure to address kick-outs.
Although New Century Financial business risks involved a great portion of internal mistakes, external factors such as Federal Reserve’s monetary policy played a significant role in deterioration of business opportunities for the New Century Financial Corporation. The baseline interest rates were increased sharply in 2006 from 1.5 % to more than 5 %. Although such a hike in the interest rates had been forecasted and anticipated since2003, the New Century Financial did consider the flagship of tightening monetary policy. The increase in interest rate affected New Century Financial in the way that the company’s assets became riskier and more prone to financial distress. Increased exposure of New Century Financial Corporation’s assets to the risks
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