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Product Integration on New Century’s Plate

Product Integration on New Century’s PlateImpact of RBC acquisition discussed in conference call

June 1, 2005


New Century Financial Corp. is breaking out of its subprime shell and well on its way to becoming a major force in other mortgage industry sectors.

In a conference call Tuesday, the real estate investment trust outlined the impact the RBC Mortgage acquisition will have on its business.

New Century, which had production of $42 billion last year, says 90% of its current volume is nonconforming, while wholesale originations also account for about 90% of its business.

But the RBC acquisition will change the face of their business.

About two-thirds of RBC’s $17 billion 2004 volume was retail, while its product mix consisted of nearly 40% in prime originations, 27% jumbo, 26% Alt-A and 2% HELOCs and second loans.

RBC’s fundings are expected to decrease about $2 billion this year and New Century has its target set at $45 billion — bringing the projected combined fundings to $60 billion during 2005.

New Century plans to first integrate its subprime and Alt-A products to RBC’s retail channels. The Irvine, Calif.-based firm said RBC is currently brokering out about $100 million per month in subprime business, and New Century is only capturing about 10% of its nonprime business. “By bringing this volume in-house we can substantially improve the overall economics,” the acquiring company said.

Secondly, RBC’s Alt-A and prime products will be integrated into New Century’s retail channels. Subsequently, the company will expand the HELOC capacity of all channels and then it will integrate and expand the wholesale product lines.

A New Century executive noted the advertising campaign by its retail division Home 123 has had early results that “are very encouraging.” While no specific products are being advertised, a significant percentage of the leads being generated are for prime, Alt-A and HELOC products. While the retail platform is currently generating $500 million per month, volume is expected to boost by 30% to 40% with the addition of RBC products, an executive said.

As for its outlook on accretive margins for RBC, an executive said that margins of about 25 basis will improve to approximately 40 BPS points, but this will take a few years to reach as it integrates synergies of the two companies.

Coco Salazar is an assistant editor and staff writer for

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