Where were the primary risks that New Century faces ??
New Century focused more on increasing their profits and sales, without regard to the risks in the line of business. The primary risks that New Century faced are identified below
Operational risks
Operating risks involve the company‘s ability to originate, retain, sell or securitize and service home mortgage loans to subprime borrowers, and to account for those transactions and properly reserve against risks relating to those transactions in an efficient and accurate manner.
New Century’s zeal for increased sales and profits, lead to originating and selling more high risk mortgages and inability to monitor loan quality and poor underwriting standards, and application of improper accounting policies. And since the company was targeting subprime borrowers, it did not worry about borrower’s ability to repay the loan as long as the company could sell the mortgages to investors. This lead to high risk problems.
Product Risk
Product risks involve the fixed rate mortgages, adjustable rate mortgages, hybrid mortgages, and interest only mortgages.
New Century offered a variety of options to borrowers, including non-traditional mortgage products such as interest only mortgages and adjustable rate mortgages at very low rates. This lead to a rapid increase in subprime mortgages and securitization. Since New Century was not only dependent on internal factors, this increased the risk for the company as any change in any external factors would have a large impact on the products offered.

Credit Risk
Credit risk involves subprime mortgage loan borrowers. New Century originated, retained, sold, and serviced home mortgage loans designed for subprime borrowers.
Subprime mortgages are generally considered a loan to an individual with a FICO (scoring system to measure individual’s credit worthiness) credit score of 620 or below, i.e. a person whose risk profile did not qualify for a prime mortgage. Subprime borrowers are at higher risk of default. Subprime mortgages include loans to purchase homes and to refinance pre-existing mortgages.

Market Risk
Market risk involves changes in interest rates, housing values, lender‘s willingness to finance New Century‘s mortgage lending operations, and secondary market investor‘s appetite for whole loan sales and securitization offered by the Corporation.
Since New Century is so reliant on various external factors, the significant increase in the baseline of interest rates was one of them, making the assets riskier and more prone to financial distress. Increase interest rates meant that the loans would become unaffordable for borrowers with adjustable rate mortgages and thus increase the risk of these mortgages to default. Increase in interest rates also meant increase in the monthly mortgage payments which would lead to a decline in the potential customers.