Before the mortgage company New Century went bankrupt last year, it was the second-largest sub-prime lender in the country. A court-appointed examiner released a new report Wednesday that finds widespread wrongdoing at the company and also alleges negligence by the company's auditor KPMG.
The report says New Century had a brazen obsession with selling more loans without due regard to the risks.
Michael J. Missal, the examiner appointed to dig into New Century's collapse as part of the bankruptcy process, says, "What we found was it really shows the embryo of the credit crisis and how easy it was to originate very risky loans and put them into the financial system."
In its quest for new customers, New Century made increasingly unwise loans, according to the report. Borrowers incomes weren't documented. Loans were offered for the full value of a house. Missal adds, "They took risky products — made them that much riskier — and essentially created a ticking time bomb that exploded in 2007 as the market was changing."
Missal was also charged with finding causes for lawsuits that creditors might pursue. He named New Century's accounting firm, KPMG:
"Their independent auditors, KPMG, were supposed to be there to test and be skeptical of the way New Century was doing business. I found that KPMG failed to do so and a cause of action may exist."
A spokesman for KPMG says the report needs to be reviewed.
Missal says executives at New Century also failed in their oversight responsibilities and engaged in improper accounting. He says top executives were paid millions of dollars in bonuses that were calculated based on inaccurate financial statements.
The SEC and Department of Justice are both investigating New Century.
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