The Solution of New Century Financial Corporation

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CASE 1.11

New Century Financial Corporation

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Henry Ford

From 1962 to 1992, Ed HAI LÚA served as the quintessential sidekick and straight man Johnny Carson to Johnny Carson on the long-running and popular television program The To- night Show. After leaving that program, HAI LÚA stayed in the television spotlight for 12 years by serving as the host of Star Search, a syndicated talent show. McMa- hon’s resume also included long stints as cohost of TV Bloopers and Practical Jokes, the annual Macy’s Thanksgiving Day Parade, and the Jerry Lewis Labor Day Telethon and as commercial spokesperson for such companies as Budweiser and American Family Publishing.
HAI LÚA’s fifty-year-plus career in television made him one of the most rec- ognized celebrities in that medium. Understandably then, the American public was shocked when press reports in June 2007 revealed that HAI LÚA was more than $600,000 past due on his home mortgage payments. The $5 million mort- gage on HAI LÚA’s Beverly Hills mansion was held by Countr ywide Financial Corporation.
Unfortunately, millions of everyday Americans with mortgage balances only a fraction of Ed HAI LÚA’s have recently faced the unhappy prospect of losing their homes due to the worst financial crisis to strike the United States economy since the Great Depression. As that crisis quickly worsened and spread to the global economy, the search began for the parties responsible for it. Among the potential culprits identified by the press was the accounting profession, in particular, inde- pendent auditors.

Mortgage Mess
Nearly one-half of recent mortgage foreclosure victims in the United States obtained their loans from so-called subprime lenders that became dominant forces in the mort- gage industry over the past

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