News Analysis: B&C Woes Spreading.(bankruptcy protection)

WASHINGTON -- The meltdown in the subprime sector is casting a gray cloud over the A- to D servicing market. As Mortgage Servicing News went to press last month, the sector's liquidity crisis - and related woes - was endangering the stability of $391 billion in receivables, or 25% of the subprime market, according to an analysis conducted by this publication.

The receivables belong to six struggling subprime servicers - Ameriquest, Fremont General, Homecomings, HSBC Finance, Mortgage Lenders Network and Option One, some of which are currently for sale. (See table.)

At least two of these firms - MLN of Connecticut and New Century - are in bankruptcy or soon will be. Among subprime servicers, New Century ranks 14th, MLN 20th.

In some cases, when a servicer files for bankruptcy protection, the end investor in the loans pulls the servicing rights, handing over the task to an interim servicer.

In the process of changing servicers, performing loans can sometimes go into default erroneously because of lost files or mistaken information.

At press time, New Century Financial Corp., Irvine, Calif., was on the verge of filing for bankruptcy protection after Morgan Stanley pulled a $265 million line of credit from the lender/servicer.

In a public filing, NCFC also revealed that several of its financiers - Bank of America, Citigroup, Credit Suisse, Deutsche Bank - had declared the non-depository in default on warehouse lines or other financial obligations.