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JPM examines New Century portfolio

JPMorgan Securities this month concluded its first loan-level analysis of New Century Financial Corp.'s servicing portfolio since the subprime mortgage lender began using a new servicing platform in late 2002. New Century, the nation's largest REIT and second-largest subprime lender, originated $42 billion of loans last year and expects volume to reach at least $45 billion this year.

Roughly 98,000 loans have been boarded onto New Century's new servicing platform since October 2002; previously, loan servicing was sourced to a third party. Also, some 95% of the lender's ARM portfolio has not reached its first rate reset date.

JPMorgan found home price appreciation, low mortgage rates and the competitive lending environment have increased voluntary repayment rates and reduced delinquency and default rates, and noted that investors should treat a future decline in loan performance due to slowed home price appreciation as a "return to normal' rather than a decline in collateral performance."

"New Century's default frequency and loss severity statistics are exceptional," JPMorgan researchers wrote. As of March, 168 loans had defaulted: 120 of which were ARMs, 47 fixed-rate, and one IO loan, and loss severities ranged from 14% for hybrid ARMs to 30% for fixed rate mortgages.

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