With New Century, one of the largest subprime lenders, filing for bankruptcy Monday, borrowers may be wondering what will happen to their loans now.

Generally, little will change. New Century and its subsidiary Home123 say borrowers will not see an immediate impact on how their loan is serviced, and should continue to make monthly payments as scheduled.

Like many lenders, New Century originates loans, many of which are later serviced by other banks. It's estimated that New Century is servicing $30 billion of some $130 billion loans it originated in the past two-and-a-half years, according to Bose George, an equity analyst at Keefe, Bruyette & Woods. As a result, only about a quarter of New Century borrowers may see any difference.

If any change does take place, it will generally be in where you will send your payment. Do not anticipate rates to increase or decrease as a result of this.

If you have a loan in process with New Century, you can get any advanced payments refunded, and should immediately make an effort to talk to your loan officer about how to best proceed.

As we see more subprime lenders go under, the funds are drying up for high risk borrowers, and those already on the line with big ARMs that they can't keep up with, (Some subprime borrowers are experiencing as high as 30% increases in their mortgage payments due to adjustable rates they were unprepared for) are hoping the government will make some effort to bail them out. Barring any involvement from the government the only other possible avenue of relief may be from the private sector.

 

However, analysts are speculating that any form of relief will cause the housing prices to stay above "where they ought to be" leaving these homes unavailable to other buyers.