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Essay / Research Paper Abstract
This 3 page paper is a critical analysis of why the subprime lender New Century Financial had to file for Chapter 11 bankruptcy in 2007, looking not only at the issues with the market, but the failures on the part of the management that lead to this action being necessary. The bibliography cites 3 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEnewcent.rtf
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Unformatted sample text from the term paper:
this bankruptcy it is necessary to understand the issues that are in the sub prime market as these appear to be the root cause of the failures seen at New
Century Financial according to a report filed by Michael Missal, who was appointed to investigate by the trustee (Reisinger, 2008). New Century Financial specialized in lending to the sub
prime market. This market, also known as the secondary market or second chance lending market is the source of loans from consumers who have poor credit histories and would not
otherwise be able to borrow money. The sub-prime market lends money to these individuals at a higher interest rate than the usual or prime market. The reason for this is
the level of risk associated with the sub prime market; the applicants have a higher potential of defaulting on the loan so the institutions offering the funds will demand higher
interest rates to compensate for the increased level of risk. Overall, the sub prime market sees an increased likelihood of defraud 10 times greater than the prime market, but it
was still estimated that 95% of loans would not see a default (The Journal of Real Estate Finance and Economics, 2004) The problem
within the sub prime market is the level of potential default which are taking place due to the way in which sub prime lending has expanded and borrowers took on
as they could not afford when interest rates increased, while lenders facilitated a large number of high risk loans. The market was attractive to New Century Financial, it was a
high growth market. For a number of years the sub prime mortgage market was the highest growth segment of the credit market (Kirchhoff and Block, 2004). Between the years 1994
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