There are renewed concerns about the US mortgage market after a major player in the country's high-risk sector said yesterday that its credit was being cut off.
New Century Financial, the second largest lender of so-called 'sub-prime' mortgages, said all its lenders had cut off or announced their intention to cut off credit.
Shares in New Century, down 90% since the start of the year, were suspended on the New York Stock Exchange and other lenders in the sector saw their stocks tumble.
Analysts said the company would have to declare bankruptcy during the next few days as it had no means of financing.
The news was the latest shock for the sub-prime sector, comprising lenders that provide financing to people with below-average credit. Companies like New Century benefited from a mass rush to buy property during a boom of recent years. Wall Street financiers were in turn eager to extend credit to such lenders to fuel the mortgage spree.
But these loans, often with adjustable rates, are now seeing increased default rates. Earlier this month, US banking regulators called for new rules making such mortgages more difficult.
Federal Reserve chairman Ben Bernanke last month said central bank officials were monitoring the situation because of an increasing rate of defaults in this sector.
