Item 1. Business.
Not Applicable
Item 1A.
Item 1A. Risk Factors.
Not Applicable
Item 1B.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Item 2. Properties.
Not Applicable
Item 3.
Item 3. Legal Proceedings.
Not Applicable
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Not Applicable
Item 6.
Item 6. Selected Financial Data.
Not Applicable
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Not Applicable
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
Item 8.
Item 8. Financial Statements and Supplementary Data.
Not Applicable
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not Applicable
Item 9A.
Item 9A. Controls and Procedures.
Not Applicable
Item 9A(T). Controls and Procedures.
Not Applicable
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Not Applicable
Item 11.
Item 11. Executive Compensation.
Not Applicable
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Not Applicable
Item 13.
Item 13. Certain Relationships and Related Transactions.
Not Applicable
Item 14.
Item 14. Principal Accounting Fees and Services.
Not Applicable
ADDITIONAL DISCLOSURE ITEMS PURSUANT TO GENERAL INSTRUCTION J
Item 1112(b) of Regulation AB. Significant Obligors Financial Information.
Not Applicable.
Item 1114(b)(2) and 1115(b) of Regulation AB. Significant Enhancement Provider Financial Information.
Not Applicable
Item 1117 of Regulation AB. Legal Proceedings
Legal Proceedings
The following information (other than the final sentence) has been provided to the Depositor by New Century Mortgage Corporation (“New Century Mortgage”), an indirect wholly owned subsidiary of New Century Financial Corporation (the “Company”).
Securities Class Action Litigation
On February 8, 2007, Avi Gold filed a securities class action complaint in the United States District Court for the Central District of California against the Company and certain of its directors and officers (the “Original Complaint”). The Original Complaint alleges that defendants violated federal securities laws by issuing false and misleading statements and failing to disclose material facts about the Company, which resulted in artificially inflated market prices of the Company’s common stock. The purported class period is between April 7, 2006 and February 7, 2007. The Original Complaint seeks money damages in favor of its purported class of purchasers of the Company’s securities, the costs and expenses of the action and other relief that may be granted by the court.
The Company has also learned that seventeen additional purported class actions were filed in the United States District Court for the Central District of California between February 8, 2007 and March 16, 2007. These complaints, some of which the Company has not yet been served with and which name the Company and certain of its officers and directors as defendants, present in large degree the same legal and factual issues as the Original Complaint and allege various class periods, the longest of which is from April 7, 2006 to March 2, 2007. One of these class actions has been brought on behalf of the holders of the Company’s 9.125% Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”) and the holders of the Company’s 9.75% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”). Another of these class actions has been brought on behalf of the holders of the Company’s Series B Preferred Stock. The Company anticipates that similar actions on behalf of holders of the Company’s common stock, Series A Preferred Stock and Series B Preferred Stock may be filed in the future. The Company intends to review the allegations in these complaints and respond appropriately. The Company’s management intends to vigorously defend these claims; however, an unfavorable outcome in these cases or future securities class action cases could have a material adverse effect on the Company’s financial condition.
Shareholder Derivative Complaint
The Company was served with a shareholder derivative complaint on March 1, 2007, filed in the Superior Court of California, County of Orange. The complaint alleges breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, and violations of California Corporations Code 25402 and seeks damages for breach, disgorgement, equitable relief, costs and fees. The case is in the very preliminary stages.
The Company has also learned that five additional shareholder derivative actions were filed in the Superior Court of California, County of Orange between February 8, 2007 and March 16, 2007 and two additional shareholder derivative actions were filed in the United States District Court for the Central District of California during this same time period. These complaints, some of which the Company has not yet been served with and which name the Company and certain of its officers and directors as defendants, present in large degree the same legal and factual issues as the original shareholder derivative complaint. The Company anticipates that similar actions may be filed in the future. The Company intends to review the allegations in these complaints and respond appropriately.
U.S. Attorney’s Office Investigation
On February 27, 2007, the Company received a letter from the United States Attorney’s Office for the Central District of California (the “U.S. Attorney’s Office”) indicating that it was conducting a criminal inquiry under the federal securities laws in connection with trading in the Company’s securities, as well as accounting errors regarding the Company’s allowance for repurchase losses. The Company has subsequently received a grand jury subpoena requesting production of certain documents. The Company intends to cooperate with the requests of the U.S. Attorney’s Office.
SEC Investigation
On March 7, 2007, the Company received a letter from the Pacific Regional Office of the Securities and Exchange Commission (the “SEC”) requesting that NCFC preserve certain documents. On March 12, 2007, the Company received a letter from the staff of the Pacific Regional Office of the SEC stating that the staff was conducting a preliminary investigation involving the Company and requesting production of certain documents. The staff of the SEC had also previously requested a meeting with the Company to discuss the events leading up to the Company’s previous announcement of the need to restate certain of its historical financial statements. The Company intends to cooperate with the requests of the SEC.
State Regulatory Actions
The Company has been engaged in recent ongoing discussions with its state regulators regarding the Company’s funding constraints and the impact on consumers who are in various stages of the loan origination process with the Company. The Company has advised these regulators that it has ceased accepting loan applications. In addition, the Company has advised these regulators that at this time, the Company and its subsidiaries are unable to fund any mortgage loans, including mortgage loans for those consumers who were already in the loan origination process with the Company. The Company has been and is continuing to work cooperatively with these regulators to mitigate the impact on the affected consumers, including transferring pending loans and loan applications to other mortgage lenders. The Company has also been providing daily reports to its various regulators regarding the status of loans in process in their states, as well as responding to ad hoc information requests.
The Company received cease and desist orders from the States of Massachusetts, New Hampshire, New Jersey and New York on March 13, 2007 (collectively, the “March 13 Orders”). New Century Mortgage additionally received a Suspension Order from the state of New York on March 13, 2007 (the “NCMC Suspension Order”). The NCMC Suspension Order suspends New Century Mortgage’s mortgage banking license in the State of New York for a period not to exceed 30 days, pending investigation. On March 14 and 15, 2007, the Company received additional cease and desist orders from the States of Connecticut, Maryland, Rhode Island and Tennessee (collectively, the “March 14-15 Orders”). The March 13 Orders and the March 14-15 Orders contain allegations that certain of the Company’s subsidiaries have engaged in violations of applicable state law, including, among others, failure to fund mortgage loans after closing. Additionally, on March 14, 2007, New Century Mortgage and Home123 entered into a Consent Agreement and Order with the Commonwealth of Pennsylvania Department of Banking, Bureau of Supervision and Enforcement (the “Pennsylania Consent Agreement”).
The March 13 Orders, the March 14-15 Orders and the Pennsylvania Consent Agreement restrain the Company’s subsidiaries from taking certain actions, including, among others, engaging in alleged violations of state law and taking new applications for mortgage loans in the relevant jurisdiction. The March 13 Orders, the March 14-15 Orders and the Pennsylvania Consent Agreement also compel the subsidiaries to affirmatively take certain actions, including the creation of escrow accounts to hold any upfront fees collected in connection with pending mortgage applications, the transfer to other lenders of the outstanding mortgage applications and unfunded mortgage loans held by the subsidiaries, and the provision of regular information to the state regulators regarding the subsidiaries’ activities in the applicable state, including the status of all outstanding mortgage applications and unfunded mortgage loans in that state. The cease and desist order received from the Rhode Island Department of Business Regulation on March 14 suspends the licenses of one or more of the Company’s subsidiaries and seeks to assess administrative penalties.
The Company and its subsidiaries requested hearings on the cease and desist orders issued by regulators in Maryland, Massachusetts, Connecticut and Rhode Island on March 23, 2007, and in Tennessee on March 27, 2007.
On March 14, 2007, the Attorney General of Ohio and the Ohio Department of Commerce, Division of Financial Institution (together, the “State”) filed a lawsuit against the Company, New Century Mortgage and Home123 (collectively, the “Defendants”) on March 14, 2007 in Ohio state court (the “Ohio Complaint”). The Ohio Complaint alleges that the Company has engaged in violations of applicable state law, including, among others, failure to fund mortgage loans after closing. Also on March 14, 2007, the court granted the State’s motion to enter a temporary restraining order, which was subsequently modified by the court on March 16, 2007, against the Defendants (as modified, the “TRO”). The TRO restrained the Defendants from taking certain actions, including, among others, (i) engaging in violations of state law, (ii) soliciting applicants and taking new applications for mortgage loans in Ohio and (iii) initiating, prosecuting or enforcing foreclosure actions in Ohio. The TRO required the parties to confer with respect to restrictions regarding foreclosure action and the sale, transfer or assignment of loans more than 60 days delinquent. On March 26, 2007, the Defendants filed a Motion for Dissolution of Modified Temporary Restraining Order and Motion for an Emergency Hearing, and Opposition to a Preliminary Injunction. On March 28, 2007, the Defendants and the State reached agreement on a Stipulated Preliminary Injunction effective for 90 days and submitted it for court approval. The Stipulated Preliminary Injunction replaces the TRO and provides for a stay of the litigation for 90 days. The Stipulated Preliminary Injunction restrains the Defendants from taking certain actions, including, among others, engaging in alleged violations of state law and taking new applications for mortgage loans. The Stipulated Preliminary Injunction also compels the Defendants to take certain actions, including the transfer to other lenders of any outstanding mortgage applications and unfunded mortgage loans, the placement in escrow of any upfront fees collected in connection with pending mortgage applications, and the provision of regular information to the State regarding the Company’s activities in Ohio, including the status of all outstanding mortgage applications and unfunded mortgage loans. The Stipulated Preliminary Injunction also requires the Defendants to submit certain loans (and related information) as to which it intends to foreclose to the State for the State to review. The State may object to the Company proceeding with a particular foreclosure and if the Company is unable to convince the State to permit it to proceed, the foreclosure will not proceed for the duration of the Stipulated Preliminary Injunction. The Stipulated Preliminary Injunction also provides for the State to review and object to the Defendants selling, transferring or assigning certain loans that are more than 60 days delinquent.
On March 16, 2007, the Company received additional cease and desist orders from the State of California (the "California Orders") and certain of the Company’s subsidiaries entered into consent agreements with the State of Florida’s Office of Financial Regulation and the State of Washington’s Department of Financial Institutions, respectively, each dated March 16, 2007 (the "March 16 Agreements" and together with the California Orders, the "March 16 Orders and Consent Agreements").
The March 16 Orders and Consent Agreements contain allegations that certain of the Company’s subsidiaries have engaged in violations of state law, including, among others, failure to fund mortgage loans after closing. The March 16 Orders and Consent Agreements restrain the Company’s subsidiaries from taking certain actions, including, among others, engaging in alleged violations of state law and taking new applications for mortgage loans in the relevant jurisdiction. The March 16 Orders and Consent Agreements also compel the subsidiaries to affirmatively take certain actions, including the creation of escrow accounts to hold any upfront fees collected in connection with pending mortgage applications, the transfer to other lenders of the outstanding mortgage applications and unfunded mortgage loans held by the subsidiaries, and the provision of regular information to the state regulators regarding the subsidiaries’ activities in the applicable state, including the status of all outstanding mortgage applications and unfunded mortgage loans in that state.
On March 16, 2007, Home123 received a suspension order (the "Home123 Suspension Order") from the State of New York Banking Department. The Home123 Suspension Order contains allegations similar to those included in the NCMC Suspension Order and further provides that Home123’s mortgage banking license in the State of New York has been suspended for a period not exceeding 30 days, pending investigation. The Company and Home123 are reviewing the Home123 Suspension Order and accordingly have not yet determined whether they will appeal all or any portion of the Home123 Suspension Order.
On March 20, 2007, the Company entered into a Combined Statement of Charges and Consent Order with the State of Iowa and a Consent Agreement and Order with the State of Maine Office of Consumer Credit Regulation, Department of Professional and Financial Regulation (together, the “March 20 Orders”). On March 21, 2007, the Company entered into a Consent Order with the State of Michigan, Department of Labor & Economic Growth, Office of Financial and Insurance Services and a Consent Order with the State of Wyoming Banking Commission (the “March 21 Orders”). On March 23, 2007, the Company entered into a Consent Agreement and Order with the State of Idaho Department of Finance (the “March 23 Order”). Similar to the consent agreements described above, the March 20, 21 and Orders contain allegations that certain of the Company’s subsidiaries have engaged in violations of state law, including, among others, failure to fund mortgage loans after closing. They restrain the Company’s subsidiaries from taking certain actions, including, among others, engaging in alleged violations of state law and taking new applications for mortgage loans in the relevant jurisdiction. They also compel the subsidiaries to affirmatively take certain actions, including the creation of escrow accounts to hold any upfront fees collected in connection with pending mortgage applications, the transfer to other lenders of the outstanding mortgage applications and unfunded mortgage loans held by the subsidiaries, and the provision of regular information to the state regulators regarding the subsidiaries’ activities in the applicable state, including the status of all outstanding mortgage applications and unfunded mortgage loans in that state.
The Company anticipates that cease and desist orders will continue to be received by the Company and its subsidiaries from additional states in the future and that the Company and its subsidiaries may enter into additional consent agreements similar to those described above.
The Company intends to continue to cooperate with its regulators in order to mitigate the impact on consumers resulting from the Company’s funding constraints.
Under the terms of the pooling and servicing agreement the Sponsor makes all of the representations and warranties with respect to the Mortgage Loans. No originator makes any representations and warranties for the benefit of the certificateholders.
Item 1119 of Regulation AB. Affiliations and Certain Relationships and Related Transactions
Provided previously in the prospectus supplement of the Registrant relating to the issuing entity and filed pursuant to Rule 424 of the Securities Act of 1933, as amended.
Item 1122 of Regulation AB. Compliance with Applicable Servicing Criteria.
See Item 15, exhibits (33) and (34).
The Assessment of Compliance with Applicable Servicing Criteria for Litton Loan Servicing LP has disclosed material noncompliance with criteria 1122(d)(2)(vii)(D), relating to reconciliations for asset backed securities related bank accounts, and 1122(d)(4)(ix), relating to adjustments to interest rates for pool assets with variable rates.
Item 1123 of Regulation AB. Servicer Compliance Statement
See Item 15, exhibit (35).
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
(a) The following is a list of documents filed as part of this Annual Report on Form 10-K:
(1) Not Applicable
(2) Not Applicable
(3)
Exhibit Number
Description
4.1
Pooling and Servicing Agreement (Filed as part of the Registrant's Current Report on Form 8-K/A filed on October 31, 2006)
Sarbanes-Oxley Certification
33(a)
Report on assessment of compliance with servicing criteria for asset-backed securities, Litton Loan Servicing LP, as Servicer
33(b)
Report on assessment of compliance with servicing criteria for asset-backed securities, LaSalle Bank National Association, as Trustee
33(c)
Report on assessment of compliance with servicing criteria for asset-backed securities, The Bank of New York Trust Company, N.A., as Custodian
34(a)
Attestation report on assessment of compliance with servicing criteria for asset-backed securities, Litton Loan Servicing LP, as Servicer
34(b)
Attestation report on assessment of compliance with servicing criteria for asset-backed securities, LaSalle Bank National Association, as Trustee
34(c)
Attestation report on assessment of compliance with servicing criteria for asset-backed securities, The Bank of New York Trust Company, N.A., as Custodian
35(a)
Servicer compliance statement, Litton Loan Servicing LP, as Servicer
35(b)
Servicer compliance statement, LaSalle Bank National Association, as Trustee
99.1
Interest Rate Swap Agreement and Interest Rate Cap Agreement, including the ISDA Master Agreement, Schedule and Confirmations (filed as part of the Registrant’s Current Report on Form 8-K filed on October 20, 2006)
(b) The exhibits required to be filed by Registrant pursuant to Item 601 of Regulation S-K:
See item 15(a)(3)
(c) Not Applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Litton Loan Servicing LP, as Servicer
March 29, 2007
/s/ Elizabeth Folk
By: Elizabeth Folk
Title: Chief Financial Officer and Senior Vice President
(senior officer in charge of the servicing function)
Supplemental information to be furnished with reports filed pursuant to section 15(d) of the Act by Registrants which have not registered securities pursuant to Section of the Act.
No annual report, proxy statement, form of proxy or other proxy soliciting material has been sent to certificateholders, and the registrant does not presently contemplate sending any such materials subsequent to the filing of this report.
EXHIBIT INDEX
Exhibit Number
Description
4.1
Pooling and Servicing Agreement (Filed as part of the Registrant's Current Report on Form 8-K/A filed on October 31, 2006)
Sarbanes-Oxley Certification
33(a)
Report on assessment of compliance with servicing criteria for asset-backed securities, Litton Loan Servicing LP, as Servicer
33(b)
Report on assessment of compliance with servicing criteria for asset-backed securities, LaSalle Bank National Association, as Trustee
33(c)
Report on assessment of compliance with servicing criteria for asset-backed securities, The Bank of New York Trust Company, N.A., as Custodian
34(a)
Attestation report on assessment of compliance with servicing criteria for asset-backed securities, Litton Loan Servicing LP, as Servicer
34(b)
Attestation report on assessment of compliance with servicing criteria for asset-backed securities, LaSalle Bank National Association, as Trustee
34(c)
Attestation report on assessment of compliance with servicing criteria for asset-backed securities, The Bank of New York Trust Company, N.A., as Custodian
35(a)
Servicer compliance statement, Litton Loan Servicing LP, as Servicer
35(b)
Servicer compliance statement, LaSalle Bank National Association, as Trustee
99.1
Interest Rate Swap Agreement and Interest Rate Cap Agreement, including the ISDA Master Agreement, Schedule and Confirmations (filed as part of the Registrant’s Current Report on Form 8-K filed on October 20, 2006)