Rising cost of funds pushes 2005 EPS down $1
By MortgageDaily.com staff
9/23/2005

An increase in its cost of funds is forcing New Century Financial Corp. to raise its rates and lower its earnings guidance.

The Irvine, Calif.-based company announced today lowered earnings guidance of $7.25 to $7.75 per share for this year, down from August when it projected $8.25 to $9.00 per share.

New Century cited compression of its operating margin as the primary reason for the revised guidance.

The real estate investment trust's earnings woes come at a time when subprime mortgage lenders across the board are experiencing significant volume growth amid a flattening yield curve -- raising their cost of funds without a corresponding increase in the rates they charge.

"Recent trends in interest rates, coupled with concerns over housing prices, energy costs and other inflationary pressures, have caused a significant deterioration in the secondary market for loans, causing our projected operating margins to fall to unanticipated levels," said Chairman and CEO Robert K. Cole. He noted they will continue raising their rates.

New Century said any impact from Gulf Coast hurricanes have not been factored in to the revised earnings guidance and cannot be determined at this time. But the company expects to maintain its dividend guidance of $7.30 per share for 2006.

A few weeks ago, New Century executives told investors that if it isn't able to get its stock priced properly with a strategy to trade at a dividend yield, one possible alternative would be to adjust its REIT and taxable REIT subsidiary business model into two to seek the true value of each, according to a transcript.

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