The largest independent US subprime mortgage lender said last night its lenders plan to halt its financing.
The move pushes New Century Financial closer to bankruptcy amid dwindling cash and $8.4 billion in obligations.
New Century's struggles are part of a wider decline among lenders to less-creditworthy home buyers who are defaulting on mortgages in increasingly large numbers.
The trend could spread, affecting a larger section of the US economy while hitting investors, such as pension funds, which bought securities backed by suspect home loans, analysts say.
If home prices remain flat this year and next, mortgage defaults could total $225 billion, creating a real risk of pulling down the broader housing market and weighing on borrowers with good credit, Lehman Brothers analysts said in a research note.