March 5 (Bloomberg) -- Shares of New Century Financial Corp. suffered their biggest drop ever, leading a decline in subprime mortgage companies and less-risky lenders.

New Century, a California lender specializing in mortgages to people with poor credit records or heavy debt burdens, plunged $10.09, or 69 percent to $4.56 in New York Stock Exchange composite trading. Fremont General Corp. slumped 32 percent, Accredited Home Lenders Holding Co. lost 26 percent and NovaStar Financial Inc. declined 41 percent. Countrywide Financial Corp., the largest U.S. mortgage lender, fell 4.9 percent.

New Century probably will declare bankruptcy, J.P. Morgan Securities analyst Andrew Wessel said. The company disclosed late on March 2 that it faces a criminal probe and may need waivers from its own lenders to stay in business. The same day, Fremont said it would stop making loans to people who can't pay and announced plans to get out of the subprime business.

``Valuation is anyone's guess,'' Wessel wrote in a report today on Irvine, California-based New Century. ``The company is running on fumes.''

A surge in defaults on mortgages to the riskiest borrowers has forced more than 20 lenders to close or seek buyers since the start of 2006. For New Century, bankruptcy is ``more likely than not,'' and the company's ``only hope'' of avoiding insolvency is to find a larger partner to provide capital in return for majority ownership, Wessel said.

`Witch Hunt'

Lehman Brothers Holdings Inc. analyst Bruce Harting wrote in a separate report that there's evidence the surge in loan defaults is spreading beyond the riskiest credits. He reduced his investment rating on so-called prime lenders to ``neutral'' from ``positive'' and cut Countrywide to ``equal weight'' from ``overweight.''

Fremont last week agreed to halt 14 violations including ``unsatisfactory lending practices'' and ``poor-quality loans.'' Today, the Santa Monica, California-based company sent ``many'' of its residential-lending staff home on paid leave ``pending further information,'' according to an e-mailed statement.

``We made good money,'' said Sean Rones, 41, an account executive who was packing his belongings into a sport-utility vehicle at the Fremont office in Anaheim, California. ``It's a shame that the feds are on a witch hunt against us.''

New Century fired about 300 people, or 4 percent of its workforce, last week.

More Damage

Independent mortgage companies had been thriving until last year as Wall Street snapped up home loans to feed demand from investors for higher-yielding securities. Many such lenders, including Accredited Home, may struggle to remain solvent as investors shun riskier mortgages, Stifel Nicolaus & Co. analysts Chris Brendler and Michael Widner wrote in a report today.

Rick Howe, a spokesman for Accredited Home, said in a voicemail message that the company ``will not be able to comment.''

While Calabasas, California-based Countrywide may be able to take advantage of the turmoil, ``it will not be easy to call a bottom,'' the Stifel Nicolaus analysts said.

Shares of Fieldstone Investment Corp., a subprime lender that agreed last month to be acquired by Credit-Based Asset Servicing and Securitization LLC, fell almost 20 percent.

Credit Lines

New Century's fate now rests with the securities firms that once staked it to more than $17 billion and bought its loans by the thousands. The company, led by Chief Executive Officer Brad Morrice, owed $1.5 billion each to New York-based Morgan Stanley and Switzerland's UBS AG at the end of September.

The brokerages financed New Century to create a steady flow of mortgages that they packaged into bonds. With delinquent home loans rising nationwide, Wall Street may scale back or cut off credit to mortgage companies.

``These credit lines are the lifeblood of subprime mortgage companies,'' said Vince Arscott, an analyst in the structured- finance division of Fitch Ratings. ``It's really going to be up to the respective credit committees of the banks, whether they want to be exposed to this risk. They may just slowly start to turn off the nozzle.''

Laura Oberhelman, a spokeswoman for New Century, said the company didn't have an immediate comment.

New Century said March 2 that federal prosecutors in California have begun a criminal probe of its accounting and trading in its securities.

Risk of Default

Standard & Poor's downgraded New Century's credit rating to B from BB- and said it may reduce Fremont's B+ rating. Fitch cut Fremont to CCC, a rating that denotes a high risk of default.

New Century said in last week's filing it had 16 credit lines and other financing agreements totaling $17.4 billion. Terms of those accords called for timely and accurate financial results, a requirement New Century failed to meet when it didn't produce an annual report by March 1.

As of Sept. 30, New Century had a $3 billion credit line with Morgan Stanley, the second-largest securities firm by market value, and an outstanding balance of $1.5 billion. That financing was supposed to expire last month, according to a regulatory filing in November. New Century didn't say last week whether the credit line was renewed and Morgan Stanley spokesman Mark Lake declined to comment.

The company also had $2 billion of credit with UBS, Europe's biggest bank. That financing is good through September 2008 and $1.5 billion was outstanding as of Sept. 30. Goldman Sachs Group Inc. and Credit Suisse Group gave New Century credit-line extensions. Other backers include Bank of America Corp., Barclays Plc, Bear Stearns Cos., Citigroup Inc. and Deutsche Bank AG.

Spokesmen for London-based Barclays, Zurich-based Credit Suisse and UBS, Frankfurt-based Deutsche Bank, and New York-based Citigroup and Goldman declined to comment. Spokesmen for Bank of America and Bear Stearns didn't return calls.

Solvency Question

If the remaining lenders don't consent to extensions, New Century's auditor, KPMG LLP, will include a statement in the annual report saying ``substantial doubt exists as to the company's ability to continue as a going concern,'' the company said March 2.

The lenders help subprime mortgage companies by providing ``warehouse'' lines of credit. They're called warehouse financing because the banks and brokerages fund individual mortgage loans and then store them until there's an inventory large enough to sell as a batch.

``Right now it's 50-50'' whether the investment banks pull financing for subprime lenders including New Century, said Bose George, an analyst at Keefe Bruyette & Woods in New York. ``If things get better, it's possible they survive. If things get worse, the possibility that warehouse lines get pulled is real.''

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Rick Green in New York at rgreen18@bloomberg.net.

Last Updated: March 5, 2007 17:17 EST