March 6 (Bloomberg) -- Shares of New Century Financial Corp. and rival mortgage lenders regained some of their lost value as investors assessed how much subprime mortgage companies might be worth dead or alive.

New Century rose 46 cents, or 10 percent, to $5.02 in New York Stock Exchange composite trading, after plummeting by more than two thirds the day before. Fremont General Corp. rebounded 15 percent today, Accredited Home Lenders Holding Co. gained 9.5 percent and NovaStar Financial Inc. added 5.8 percent. Countrywide Financial Corp., the largest U.S. mortgage lender, rose 4.7 percent.

Mortgage stocks tumbled yesterday after New Century disclosed a criminal probe March 2 and said it may not be able to stay in business. They fell so much that hedge funds and private equity firms may now be willing to bet on a turnaround, said analyst Richard Eckert at Roth Capital Partners in Los Angeles.

``There are bottom-feeders, your classic value vultures, who figure at these depressed valuations there may be more upside than downside,'' Eckert said. ``You maybe buy a basketful of these stocks and hopefully one or two of them pan out.''

Citadel Investment Group LLC agreed late yesterday to buy bankrupt ResMae Mortgage Corp. and its portfolio of loans for about $180 million, topping Credit Suisse Group.

The rally accelerated as some investors who had ``shorted'' the stocks -- a bet on falling prices that uses borrowed shares -- closed out their trades, he said. Even with today's gain, New Century's stock remains 84 percent below where it began the year.

Paulson's Assessment

Treasury Secretary Henry Paulson moved to cool concern about rising defaults at subprime mortgage companies, saying the woes won't spill over to banks that make less risky loans. 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.

``Credit issues are there, but they are contained,'' Paulson said to reporters in Tokyo during a four-day tour of Asia. The U.S. financial industry is healthy and most institutions won't feel ``a big impact.''

New Century disclosed last week that the U.S. attorney is probing accounting and securities trades, and the company may need its own lenders to relax terms on credit lines to stay in business. The same day, Fremont said it agreed to stop making loans to people who can't pay and announced plans to get out of the subprime business.

Countrywide's View

Both companies specialize in loans to people with low credit ratings and high debt burdens, often among the first to default when the economy weakens or interest rates rise. New Century ranked second last year in new subprime loans behind HSBC Holdings Plc, according to Inside B&C Lending, a trade journal.

HSBC, Europe's biggest bank by market value, fired the heads of the U.S. business in the past month and curtailed lending to heavily indebted borrowers because of heavy losses.

``This is not a stable market,'' HSBC Chief Executive Officer Michael Geoghegan said on a conference call yesterday.

Countrywide Chief Financial Officer Eric Sieracki said today there were too many companies writing subprime loans.

``Because of all that proliferation of supply, we had relaxing of underwriting standards,'' Sieracki told an investor conference in Orlando, Florida. ``We have a lot of subprime lenders out there for sale, and at the end of the day, their liquidations will be a great thing.''

Credit Lines

New Century probably will declare bankruptcy, J.P. Morgan Securities analyst Andrew Wessel said yesterday. The company depends on brokerages and banks including Morgan Stanley and Barclays Plc for financial backing. Barclays, which provides New Century with a $1 billion credit line, said today the financing is secured by assets and it doesn't expect ``material losses'' on loans to subprime lenders. The credit line expires this month.

Eckert said he suspended coverage of New Century after the company announced on Feb. 7 it will restate 2006 earnings because of faulty accounting tied to loans that went sour. The company hasn't said what day new financial statements will be published.

``I couldn't come up with a reasonable way of arriving at a valuation,'' Eckert said. ``I don't know book value, I don't know earnings, and there's a whole lot of things I don't know and I don't care to speculate about.'' Eckert cut his rating on San Diego-based Accredited today to ``hold'' from ``buy.''

Private Equity

Standard & Poor's Ratings Services lowered the counterparty credit rating yesterday on New Century to ``CCC'' from ``B'' and said it may downgrade its opinion again. S&P also kicked New Century out of the SmallCap 600 index because its market capitalization fell below the $300 million minimum.

Private-equity firms may be better equipped than public companies to own subprime mortgage businesses and ride out a slump in the housing market, Eckert said.

``You provide it with some more capital, you provide it with a whole lot more patience than the public equity markets can show, incubate it through the trough in the cycle and then maybe try to monetize your interest when the cycle turns,'' he said.

Among home lenders, Impac Mortgage Holdings Inc. rose 20 percent and Fieldstone Investment Corp. gained 9.4 percent. H&R Block Inc., which is trying to sell its subprime unit, added 3.4 percent.

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

Last Updated: March 6, 2007 17:53 EST