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New Century Financial Adopts Changes To Lending Practices
By James Comtois
Irvine, Calif.-based mortgage REIT New Century Financial Corp. announced the first of a series of additional lending best practices that its operating subsidiaries, New Century Mortgage Corp. and Home123 Corp., will adopt in order to continue to provide customers with fair and informed access to credit.
"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 Brad Morrice, president and CEO of New Century Financial. "While we believe that our 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."
The changes that the company plans to adopt consist of enhancements to disclosures, controls, product design and underwriting. This includes tightening the underwriting guidelines for its adjustable-rate mortgage programs for at-risk borrowers. This includes using the fully indexed rate minus 1% as the qualifying rate for these borrowers.
Another change is that New Century Mortgage and Home123 will offer existing ARM and I/O customers who qualify the option of refinancing into a low fee 30-year or 40-year fixed-rate mortgage. Any borrower having problems meeting their loan obligations should feel free to contact the company to discuss options for keeping them in their home.
New Century Financial is also implementing plain language disclosures that go beyond legal requirements in explaining terms such as prepayment charges, I/O features, adjustable-payment features, escrows for insurance and taxes and other key features of a loan.
The company will be enhancing its processes for confirming the income information provided on stated income loans. In addition to the closing certification currently employed, the company will introduce a new front-end confirmation early in the loan process to assist applicants in better understanding the terms of their loan.
Mr. Morrice added that these changes have been the product of analysis by New Century Financial's credit, compliance, fair lending and production personnel, as well as from an ongoing dialogue with the leading national fair housing, community reinvestment, civil rights and consumer advocacy groups.
"Our focus is to provide clear explanations of key loan terms for the benefit of all borrowers and to implement policy changes that would assist those borrowers who are most susceptible to principal and interest repayment issues in the current interest rate and housing environment, principally those with weaker credit histories, incomes and fewer financial reserves," he said.
New Century Financial will implement these changes over the next few months and expects to announce further enhancements to its lending practices.
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