Risky loans and improper accounting created a “ticking time bomb” at bankrupt subprime mortgage lender New Century Financial Corp., a bankruptcy court examiner said in a report released Wednesday.
Examiner Michael J. Missal’s report laid blame with New Century’s senior management and auditor KPMG LLC.
Missal is a partner with Kirkpatrick & Lockhart Preston Gates Ellis LLP’s Washington, D.C., office who was appointed as examiner in the case by Delaware’s bankruptcy court last year.
He issued a preliminary report in November and a final version in February that was sealed until Wednesday.
New Century’s executives failed to take steps to manage rising risks from an aggressive approach to making loans to borrowers with imperfect credit, according to an account of Missal’s report by the Associated Press.
The company engaged in at least seven improper accounting practices in 2005 and 2006, according to Missal.
KPMG, which served as New Century’s outside auditor since the company went public in 1997 to early 2007, allowed some of the improper accounting practices to continue, according to the report.
New Century’s spiral started in early 2007 when the company warned of a quarterly loss, projected a big drop in 2007 loans and said some 2006 results would need to be restated to fix accounting errors.
The company filed for bankruptcy in April 2007.
New Century had been the second-largest originator of subprime home loans with a market value of more than $1 billion during the mortgage boom.
