Essay Sample on NCF's Strategic Objectives

Introduction

The strategic objective of the New Century Financial Corporation involved the mission to achieve loan origination, mortgage loan securitization selling, as well as the loan servicing. Loan origination involved selling mortgages, the processing applications, and the funding of the mortgages based on the underwriting standards. On the other hand, the loan securitization would involve the movement of loans off balance to special purpose entities established by the investment banks or by the originator. In both cases, the company would, therefore, inspect the loans and sell them as the mortgage-backed securities, and this included the pensions and investors. Moreover, the company aimed to embrace the loan servicing referred to the collection of the payments from the mortgagors, paying the holders of the loans as well as the payment of the real estate taxes and the appropriate insurance. By 2006, the company had expanded its range of products that included the fixed-rate mortgages, adjustable rates mortgages (ARMSs) and the hybrid mortgages among others.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Notably, these products were from two company's divisions of the Wholesale Loan Division and the Retail Mortgage Loan Division. Fundamentally, these divisions were different regarding the sales channel, either being direct or indirect. A large number of employees including the account executives and mortgage brokers within its wholesale ensured that the three strategic objectives listed above were achieved to remain competitive in the market as well as in the entire industry. The company further retained a part of the security backed by the securitised loans, which was labelled as "Mortgage loans held for investment (LFHI). The company treated this as an asset on the balance sheet as well as the bonds used to finance those assets on the liabilities side.

Risks associated with the Business Model adopted

The New Century Company had demonstrated a significantly high pace for growth. Notably, the Zeal for the rise in the quantity of the sales and profit amount was contributed by the fact that the company was unable to properly execute implementation of the mechanism of underwriting and loan quality monitoring. In this sense, therefore, the considerable general attention to the effective actions imposed other serious business risks. These included improper handling, poor underwriting and the monitoring of the quality of the loan. The improper accounting policies applied and implemented outside the requirements of the GAAP further placed the company in a serious state of jeopardy. The improper underwriting standards that emerged as a result of insufficient attention to risks of default in borrowing translated to serious inability to offer proper loan quality. A major concern regarding the poor loan monitoring was based on the fact that the company did not worry about the abilities of the borrowers to repay the loans provided that it was able to sell the mortgages to investors.

Conclusion

Even though the company's internal audit executives found and provided a report regarding the substantial risks and problems that could otherwise affect the overall operation, the company's senior management were unable to make a devotion of the particular attention to the loan quality until the last quarter of the financial year 2006. The management further failed to make approval of the plan to monitor and identify the underwriters who approved the defective loans.