May 3 (Bloomberg) -- New Century Financial Corp., the biggest subprime mortgage company to declare bankruptcy, will close its home-lending unit and fire about 2,000 people after failing to find a buyer.

Chief Executive Officer Brad Morrice informed employees in a conference call today, said Dan Gagnier, a spokesman for the Irvine, California-based company. A court-administered auction continues for the servicing business, which mails out monthly statements and handles collections, Gagnier said. Separately, New Century said KPMG LLP quit as the company's auditor.

New Century stopped taking applications in early March as defaults by borrowers surged and bankers cut off its credit. The company also faced state and federal probes of its lending practices. It filed for bankruptcy April 2 and started trying to sell the origination unit even as rival subprime lenders were already seeking buyers.

``There's a lot of platforms available, and the New Century platform hadn't originated any loans in 60 days,'' said Ron Greenspan, a senior managing director at FTI Consulting Inc. who is acting as financial adviser to New Century's unsecured creditors. ``They were at a competitive disadvantage.''

New Century made about $60 billion in loans last year, and employed 7,200 people at the end of 2005. It announced 3,200 dismissals when it filed for bankruptcy.

Housing Boom

The company rode the U.S. housing boom to become the largest independent mortgage lender to subprime borrowers, only to collapse as interest rates rose and home prices fell. Like rival firms, the company lowered its lending standards to keep business flowing after demand slumped.

The lending business consisted of a network of 57,000 independent mortgage brokers who locate borrowers and the employee loan officers who handle applications and approvals.

The platform also included computer software and equipment used to analyze applications, as well as 262 retail branches and 34 regional operations centers in 20 states.

``It is very expensive maintaining that platform,'' FTI's Greenspan said. ``All the employees were still being paid and you have rents, and if there was not a forthcoming bidder, the committee did not feel it was a worthwhile expenditure to continue to support it.''

The deadline to submit bids for the lending unit was yesterday, and the job cuts take effect tomorrow, Gagnier said.

Carrington Capital Management LLC has agreed to bid at least $139 million for the mortgage-servicing business.

Auditor Resigns

U.S. prosecutors opened a criminal probe of accounting errors and trading in securities at New Century, the company said March 2 in a filing with the U.S. Securities and Exchange Commission. Since then, more than a dozen states have told the company to halt operations, citing complaints from borrowers that their loans weren't being funded.

New Century said in a regulatory filing today that KPMG had resigned as the independent auditor on April 27, citing an internal investigation of the company's accounting. New Century said that since it's in liquidation, it doesn't expect to name a replacement.

The company's shares fell 2.5 cents to 80.5 cents in over- the-counter trading today. In May, 2006, they sold for as much as $51.45.

Subprime Loans

Subprime mortgages are made to people with blemished credit records or heavy debts, which make them among the riskiest for lenders. The loans typically charge 2 to 3 percentage points more than those to people with stronger credit profiles, and often carry adjustable interest rates that can cause payments to jump in later years, making defaults even more likely.

Subprime loans accounted for 86 percent of all New Century loans last year, the company said in court filings.

New Century was founded in 1995 by a trio of former managers at Option One Mortgage -- now a unit of H&R Block Inc. -- including current Chief Executive Officer Brad Morrice. In the late 1990s the company survived an industry shakeout that led to the bankruptcies of bigger rivals including United Cos.

Late payments on U.S. subprime mortgages reached a four-year high in last year's final quarter, the Mortgage Bankers Association reported. At least 50 mortgage companies have halted operations or sought buyers since the start of 2006, according to Bloomberg data.

Seeking Buyers

The surge in defaults forced Kansas City, Missouri-based NovaStar Financial Inc. to hire Deutsche Bank AG last month to advise on ``a range of strategic alternatives,'' including a sale. H&R Block Inc. last month agreed to sell its subprime mortgage unit, Option One, for 40 percent less than originally sought. Fremont General Corp. said April 16 that it had agreed to sell its mortgage business to an unidentified buyer.

Bose George, an analyst at Keefe Bruyette & Woods in New York, said it's ``not all that surprising that capacity has to get pulled out of the industry.'' He's forecasting that new subprime mortgages will decline by 30 percent to 50 percent over the next 12 to 18 months.

``Given the amount of excess capacity, you're going to have to shut a lot of these platforms or pare a lot of them down significantly,'' George said.

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

Last Updated: May 3, 2007 18:05 EDT