Sub-prime industry meltdown continues

The Los Angeles Times reports: “The meltdown in the business of high-cost mortgages to high-risk borrowers accelerated Friday as one major lender revealed that it was under federal criminal investigation and a second said it would quit the business after regulators accused it of making too many loans likely to end in foreclosure… The criminal investigation disclosed Friday focuses on how New Century Financial Corp. of Irvine accounted for losses when it was forced to buy back soured loans last year, and whether its executives profited by selling stock while misleading other shareholders… New Century, the largest independent sub-prime lender, shocked Wall Street last month when it said that it would restate results for the last year, erasing $268 million in profit it had reported. Shareholder lawsuits accuse the company’s officers and directors of selling stock for more than $26 million at falsely inflated levels.

Federal regulators already have leveled civil accusations against the No. 2 independent sub-prime lender, Fremont General Corp. of Santa Monica. Fremont disclosed Friday in an SEC filing that the Federal Deposit Insurance Corp. would sanction its bank subsidiary, Brea-based Fremont Investment & Loan, for failing to control the risks inherent in sub-prime lending and in its second major business, commercial real estate construction loans. The company said it had decided to quit sub-prime lending entirely and was “engaged in discussions with various parties regarding the sale of the business.”