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The Sub-Prime Slide Hits New Century Financial

SUSIE GHARIB: More fallout in the troubled sub-prime housing market. The nation's largest independent sub-prime lender appears to be on the verge of bankruptcy tonight. New Century Financial said today that all of its bank lenders have now cut off funding, which will likely prevent the company from meeting its financial obligations. It owes nearly $8.5 billion to its creditors, who could demand repayment immediately. Erika Miller reports.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: New Century has become the poster child of the sub-prime meltdown. Shares of the largest independent sub-prime lender were halted and never traded at the New York Stock Exchange today. And the NYSE says it is considering whether to de- list the stock, which is already down 90 percent this year. Morningstar analyst Ryan Lentell explains New Century's implosion.

RYAN LENTELL, SPECIALTY FINANCE ANALYST, MORNINGSTAR: In a nutshell, basically New Century just borrowed too much money in short-term financing. And when some of their loans started to go bad, their lenders got nervous and started to run away.

MILLER: Those lenders include Bank of America, Citigroup, Credit Suisse, Goldman Sachs and Morgan Stanley. All appear to be on the hook for hundreds of millions of dollars, but analyst Stuart Plesser of Standard & Poor's doesn't expect much long-term impact on those companies' profits.

STUART PLESSER, MORTGAGE BANKING ANALYST, STANDARD & POOR'S: The investment banks certainly make their money from a wide array of different investments. And they definitely will get hurt if these sub-prime borrowers, lenders do not pay them back, but this is not going to be a significant hit.

MILLER: Most industry analysts do think there will be more trouble from other sub-prime lenders like Novastar Financial, Accredited Home Lenders and Freemont General. Those stocks all got clobbered today. Countrywide Financial, the largest U.S. mortgage lender, says less than 10 percent of its loans are sub-prime, but it acknowledges it could still feel a drag on earnings near term. Longer term, analysts predict Countrywide will benefit from the shake-out in the sub-prime housing market.

LENTELL: It should benefit the other surviving sub-prime lenders in the long run, as they are able to charge a higher interest rate to people looking to finance loans.

MILLER: You might think the troubles at New Century would sour big investment banks on the sub-prime market. Instead, many analysts are predicting major Wall Street firms will step in to buy the distressed companies or their loan portfolios at deeply discounted prices. Erika Miller, NIGHTLY BUSINESS REPORT, New York.