Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2000

OR

Commission File Number 000-22633

NEW CENTURY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code:  (949) 440-7030

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $0.01 par value

    Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes /x/

  No / /

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  / /

    The aggregate market value of Common Stock held by non-affiliates of the Registrant on March 23, 2001 was approximately $22.9 million based on the closing sales price for the Common Stock on such date of $10.31 as reported on the Nasdaq National Market.

    As of March 23, 2001, the Registrant had 14,893,198 shares of Common Stock outstanding.

    PART III incorporates information by reference from the Registrant's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders to be filed with the Commission within 120 days of December 31, 2000.

PART I

ITEM 1. BUSINESS

GENERAL

    New Century Financial Corporation ("New Century" or the "Company") is a specialty finance company that, through its subsidiaries, originates, purchases, sells and services sub-prime mortgage loans secured primarily by first mortgages on single-family residences. The Company was incorporated in Delaware in November 1995 and commenced lending operations in February 1996.

ORIGINATIONS AND PURCHASES.  The Company originates and purchases loans through both wholesale and retail channels. Wholesale originations and purchases are through independent mortgage brokers who provide loans through the Wholesale Division of the Company's New Century Mortgage Corporation subsidiary as well as through its subsidiary, Worth Funding Inc. Wholesale originations represented 73.3% of the Company's total originations and purchases in 2000. Retail originations are made through New Century Mortgage's network of branch offices, through its Central Retail Division and from applicants directed to New Century Mortgage through the Company's subsidiary, The Anyloan Company, including its anyloan.com website. Retail originations represented 26.7% of the Company's total originations and purchases in 2000. All of the Company's loans are secured by first or second mortgages on one-to-four family residences.

THE TYPICAL BORROWER.  The Company's borrowers generally have considerable equity in the property securing their loan, but have impaired or limited credit profiles or higher debt-to-income ratios than traditional mortgage lenders allow. The Company's borrowers also include individuals who, due to self-employment or other circumstances, have difficulty verifying their income through conventional methods, and who prefer the prompt and personalized service provided by the Company.

UNDERWRITING.  Although the Company's underwriting guidelines include six levels of credit risk classification, approximately 68.3% of the principal balance of the loans originated and purchased by the Company in 2000 were to borrowers within the Company's three highest credit grades. Of the Company's loans originated or purchased during 2000, 94.6% were secured by borrowers' primary residences. The average loan-to-value ratio on loans originated and purchased by the Company in 2000 was approximately 78.6%. Approximately 95.3% of the loans originated and purchased by the Company during 2000 were secured by first mortgages, and the remainder were secured by second mortgages. Approximately 80.6% of the loans originated and purchased by the Company in 2000 were refinances of existing loans, while the remaining 19.4% represented loans for a borrower's purchase of a residential property.

LOAN SALES AND SECURITIZATIONS.  NC Capital Corporation ("NC Capital"), a subsidiary of New Century Mortgage, is the Company's secondary marketing channel. NC Capital has sold virtually all of the Company's loan production through a combination of securitizations and bulk sales of whole loans to institutional purchasers. In 2000, whole loan sales accounted for 75.3% of total loan sales, and securitizations accounted for the balance of loan sales.

SERVICING AND RESIDUAL INCOME.  The Company also receives revenue from servicing its loans on behalf of the loan purchasers. At the end of 2000, the Company's servicing portfolio, including loans held for sale, totaled $6.1 billion. Servicing and residual income also includes interest earned on the Company's residual interests in securitizations. The Company's residual interests averaged $385.5 million during

2

2000. In 2000, servicing revenues totaled $80.0 million, and accounted for 48.8% of the Company's total revenues. Of the $80 million, $49.9 million represented interest on residual securities and $30.1 million was from servicing fees and related income.

    In March 2001, the Company sold the servicing rights on approximately $4.8 billion of its servicing portfolio to Ocwen Federal Bank FSB for $19.7 million. The transfer of the Company's servicing portfolio to Ocwen's Orlando, Florida servicing platform is scheduled to be completed by August 1, 2001. After the transfer, the Company will no longer recieve servicing fees and related income on this portion of the portfolio, but the Company will still continue to receive the interest on the residual securities.

NET INTEREST INCOME.  In 2000 the Company earned $11.3 million in net interest income (excluding interest expense on residual financing, $16.1 million), which represented approximately 6.9% of the Company's total revenues. Net interest income is earned on loans held in inventory for sale.

INSURANCE PREMIUMS.  The Company also receives commissions on collateral protection insurance that the Company purchases when its borrowers fail to maintain property and flood insurance themselves. In 2000, the Company received $1.7 million in these commissions.

GROWTH AND OPERATING STRATEGIES

    In 2000, the Company recorded a loss of $23.0 million on total revenues of $163.9 million. The loss was largely due to $67.0 million in adjustments to the carrying value of the Company's residual securities. Despite the financial results, the Company's business experienced a number of significant developments during 2000:

MANAGEMENT REORGANIZATION.  In the fourth quarter of 2000 and first quarter of 2001, the Company announced several senior management changes. Brad Morrice, Vice Chairman and President of the Company assumed the additional role of Chief Operating Officer and also became the sole Chairman and Chief Executive Officer of New Century Mortgage Corporation. In addition, the Company appointed a new Chief Credit Officer and Chief Administrative Officer, utilizing the management talent already existing within the Company.

CONSOLIDATION OF OPERATIONS.  During 2000, the Company merged its Primewest subsidiary into its New Century Mortgage subsidiary. The former Primewest operations have now been consolidated with the Company's other direct retail operations into a Central Retail Division. Likewise, The Anyloan Company's anyloan.com operation has eliminated its duplicative corporate and IT services, and instead receives those services from New Century Mortgage.

REDUCING ALL-IN ACQUISITION COSTS PER LOAN.  The Company reduced its "all-in acquisition cost" from 3.46% for the quarter ended December 31, 1999 to 2.72% for the quarter ended December 31, 2000. The Company defines the "all-in acquisition cost" as the fees paid to wholesale brokers and correspondents, direct loan origination costs (including commissions and corporate overhead costs), less the sum of points and fees received from retail borrowers, divided by total production volume. The Company achieved this reduction through a combination of (i) decreasing corporate overhead and commission expense, (ii) reducing marketing costs, (iii) consolidating operations, (iv) adjusting the fee structure, (v) closing unprofitable branches, and (vi) reducing staff from 1,770 at December 31, 1999 to 1,511 at December 31, 2000.

SECONDARY MARKETING TRANSITION.  During 2000, the Company transitioned from securitizing the majority of its loans to selling the vast majority of production for cash in whole loan sales. This transition assisted in increasing the Company's cash revenues and reducing the need for additional capital or

3

borrowings in order to fund its operations. During 2001, the Company plans to continue to focus its secondary marketing on sales strategies that will optimize liquidity.

ADJUSTMENTS TO UNDERWRITING GUIDELINES.  During 2000, the Company adjusted its underwriting guidelines to concentrate on originating loans that command a higher secondary market value. The Company's gain on sale from whole loan sales increased from 2.61% for the quarter ended December 31, 1999 to 3.03% for the quarter ended December 31, 2000, partly as a result of these efforts. The Company has also devoted efforts to reducing the number of loans it sells at a discount due to document errors, borrower fraud or other reasons.

ESTABLISHMENT OF INSURANCE AGENCY.  During 2000, the Company established an insurance agency in order to be able to earn commissions on certain insurance products offered to the Company's borrowers.

STRATEGIES FOR 2001

    The Company's strategies for returning to profitability in 2001 include:

SALE OF SERVICING RIGHTS.  In March 2001, the Company sold the servicing rights on approximately $4.8 billion of its servicing portfolio, comprised of 25 separate asset-backed securities, to Ocwen Federal Bank FSB for $19.7 million. The Company will retain approximately $1 billion in mortgage servicing rights on loans that have not been securitized. These servicing rights may be sold to Ocwen in future periods. Ocwen also purchased the Company's outstanding servicing advance receivables and assumed responsibility for all future servicing advance obligations on those 25 asset-backed securities. As part of the transaction, the Company also agreed to sell Ocwen servicing rights with respect to up to $3 billion in mortgage loans between March 2001 and December 31, 2002 at a price to be determined based on the characteristics of those servicing rights. With the cash proceeds from the Ocwen transaction, the Company was able to (i) repay the portion of its warehouse line of credit secured by servicing advances, (ii) repay the outstanding balance on its $22.5 million working capital line of credit with US Bank, (iii) purchase interest rate "hedge" protection for the residual cash flows, and (iv) increase its liquidity.

    Ocwen is one of the country's highest-rated specialty servicers and has a strong capital position. The Company believes that it will provide bondholders and loan buyers with greater comfort that the servicer will be able to achieve consistent collateral performance throughout the life of the loans. The transfer of the Company's servicing portfolio to Ocwen's Orlando, Florida servicing platform is scheduled to be completed by August 1, 2001. There can be no assurance that the parties will be able to complete the transfer by that date.

IMPROVE BORROWING TERMS AND REDUCE DEBT.  Also in March 2001, the Company restructured approximately $130 million of existing residual financing. The restructuring reduces the Company's exposure to margin calls on the residual financing and provides for an orderly repayment schedule with full repayment by December 31, 2002. In addition, as part of the debt restructuring, US Bank extended the maturity of its $40 million of subordinated debt from June 2002 to December 31, 2003. As a result, the repayment schedule for the residual and subordinated debt more closely tracks the projected cash flows from the Company's residual securities. Based on projected cash flows used to value the Company's residual securities, residual financing will be reduced to below $100 million by year-end 2001.

CONTINUE REDUCING COSTS.  The Company continues to focus its efforts on reducing its all-in loan acquisition costs to its 2001 target of 2.50% through additional staff reductions, process consolidation and automation.

4

CONTINUE CASH-ORIENTED SECONDARY MARKETING STRATEGY.  During 2001, the Company plans to continue to focus its secondary marketing on sales strategies that will optimize liquidity. The Company has adjusted its underwriting guidelines to match those of whole loan buyers, which should help to improve the net execution value. The Company is also executing forward loan sales strategies to expand relationships and manage its net margins. Finally, the Company is exploring securitization strategies that generate immediate cash in excess of origination costs and that do not require residual financing.

REDUCE LOANS SOLD AT DISCOUNT.  The Company plans to devote significant efforts to reducing the number of loans the Company sells at a discount to par value and also reduce the severity of the losses on the loans that are sold at less than par. Loans are typically sold at a discount when (i) there are technical deficiencies in the loan documentation, (ii) the loans have characteristics that are outside the guidelines of whole loan buyers, or (iii) the borrower defaults on the first payment. In order to accomplish these objectives, the Company has appointed a corporate level Chief Credit Officer, improved the analytics used in evaluating discount loans and eliminated products resulting in disproportionately high levels of discount loans.

IMPROVE CASH FLOW.  The Company's objective is to achieve cash flow positive operations in 2001. The Company's strategies for achieving this goal include: (i) selling a significant portion of the Company's loan production for cash through whole loan sales, (ii) improving the credit quality of the Company's loan production, (iii) continuing to reduce its all-in loan acquisition costs, (iv) concentrating on originating higher-value loans and reducing low-margin production, (v) improving the ratio of loans funded over total loans submitted, and (vi) evaluating securitization alternatives that could yield net cash proceeds to the Company equal to or greater than the proceeds received through whole loan sales, with no additional residual financing required.

LOAN ORIGINATIONS AND PURCHASES

    The Company originates and purchases loans through New Century Mortgage's traditional Wholesale Division, through its Worth Funding Inc. subsidiary, its traditional Retail Branch Operations Division and the Central Retail Division. These divisions originate and purchase loans as follows:

The Wholesale Division originates and purchases loans through a network of independent mortgage brokers and correspondents solicited by the Division's account executives. These account executives provide on-site customer service to the broker to facilitate the funding of the loan.

Worth Funding originates and purchases loans by soliciting and servicing brokers through its centralized telemarketing approach, operating from one central office where all decisions can be made promptly.

The Retail Branch Operations Division originates loans direct to the consumer through the Company's 69 retail branch offices located in 26 states.

The Central Retail Division originates, processes and underwrites home mortgage loans nationwide. Loan Officers fulfill customer requests, operating from one central office. Leads are generated through radio, direct mail, telemarketing and the Company's websites.

WHOLESALE AND WORTH FUNDING.  During 2000, the Company's wholesale originations and purchases totaled $3.0 billion, or 73.3% of the Company's total loan production, including $123.5 million, or 3.0%, originated through Worth Funding, which was acquired by the Company in March 2000. As of December 31, 2000, the Wholesale Division was operating through five regional operating centers located in Southern California, Northern California, Chicago, Illinois, Englewood, Colorado, and Tampa, Florida and through 21 additional sales offices located in Alabama, California, Idaho, Indiana, Massachusetts, Michigan, Minnesota, Missouri (2), Nevada, New Mexico, Ohio (2), Oregon, Tennessee, Texas (2), Virginia, Washington (2), and Wisconsin, employing a total of 126 account executives. As of December 31,

5

2000, the Company had relationships with approximately 6,184 approved mortgage brokers and during 2000 originated loans through approximately 4,900 brokers. During 2000, New Century's ten largest producing brokers originated approximately 8.0% of the Company's loans, with the largest broker accounting for approximately 1.3% of the Division's production.

    In wholesale originations, the broker's role is to identify the applicant, assist in completing the loan application form, gather necessary information and documents and serve as the Company's liaison with the borrower through the lending process. The Company reviews and underwrites the application submitted by the broker, approves or denies the application, sets the interest rate and other terms of the loan and, upon acceptance by the borrower and satisfaction of all conditions imposed by the Company, funds the loan. Because brokers conduct their own marketing and employ their own personnel to complete loan applications and maintain contact with borrowers, originating loans through the Wholesale Division allows the Company to increase its loan volume without incurring the higher marketing, labor and other overhead costs associated with increased retail originations.

    Mortgage brokers generally submit loan applications to an account executive in one of the Company's sales offices. The sales office then forwards the application to the closest regional operating center where the loan is logged in for RESPA and other regulatory compliance purposes, underwritten and, in most cases, conditionally approved or denied within 24 hours of receipt. Because mortgage brokers generally submit individual loan files to several prospective lenders simultaneously, the Company attempts to respond to each application as quickly as possible. If approved, the Company issues a "conditional approval" to the broker with a list of specific conditions to be met (for example, credit verifications and independent third-party appraisals) and additional documents to be supplied prior to the funding of the loan. An account manager and the originating New Century account executive work directly with the submitting mortgage broker to collect the requested information and to meet the underwriting conditions and other requirements. In most cases, the Company funds loans within 30 days after approval of the application.

    The Wholesale Division also purchases closed loans on an individual or "flow" basis from independent mortgage brokers and financial institutions. The Company reviews an application for approval from each lender seeking to sell the Company a closed loan. The Company analyzes the mortgage broker's underwriting guidelines and financial condition, including its licenses and financial statements. The Company requires each mortgage broker to enter into a purchase and sale agreement with customary representations and warranties regarding the loans such mortgage broker will sell to the Company, thereby providing the Company with representations and warranties that are comparable to those given by NC Capital to its loan purchasers.

6

    The following table sets forth selected information relating to loan originations through the Wholesale Division and Worth Funding during the periods shown:

Note. Worth Funding was acquired at the end of March. The quarter ending March 31, 2000 does include one Worth Funding loan.

RETAIL BRANCH OPERATIONS DIVISION AND CENTRAL RETAIL DIVISION.  During 2000, the Retail Branch Operations Division originated $797.5 million in loans, or 19.2% of the Company's total loan production. The Central Retail Division originated $313.0 million, or 7.5% of the Company's total loan production. As of December 31, 2000, the Retail Branch operations Division employed 279 retail loan officers, located in 69 sales offices in Arizona (3), California (19), Colorado, Florida (4), Georgia, Hawaii (2), Illinois (2), Kentucky, Louisiana, Massachusetts, Michigan, Minnesota (3), Missouri (2), Montana, Nevada (2), New Jersey, New Mexico, Ohio (3), Oklahoma, Oregon, Pennsylvania, Tennessee (2), Texas (8), Utah, Virginia (2), and Washington (4). As of December 31, 2000, the Central Retail Division employed 64 loan officers and The Anyloan Company employed 10 loan officers at their offices in Irvine, California.

    By creating a direct relationship with the borrower, retail lending provides a more sustainable loan origination franchise and greater control over the lending process. Loan origination fees contribute to profitability and cash flow and offset the higher costs of retail lending.

7

    The following table sets forth selected information relating to loan originations through the Retail Branch Operations Division and Central Retail Division during the periods shown:

MARKETING

RETAIL BRANCH MARKETING.  New Century Mortgage's Retail Branch Operations Division relies primarily on targeted direct mail and outbound telemarketing to attract borrowers. New Century Mortgage's direct mail programs are managed by a centralized staff who create a targeted mailing list for each branch market and oversee the completion of mailings by a third party mailing vendor. All calls or written inquiries from potential borrowers which result from the mailings are tracked centrally and then forwarded to each branch location and handled by branch loan officers. The Division's website (www.newcenturymortgage.com) is used in the direct mail program to provide information to prospective borrowers and to allow them to complete an application online. Under the Central Telemarketing Program, the telemarketing staff solicits prospective borrowers, makes a preliminary evaluation of the applicant's credit and the value of the collateral property and refers qualified leads to loan officers in the retail branch closest to the customer.

CENTRAL RETAIL MARKETING.  New Century Mortgage's Central Retail Division engages in a variety of direct response advertising, such as purchased leads from aggregators, radio advertising, direct mail, search engine placement, banner ads, e-mail campaigns and links to related websites. Central Retail also markets to New Century Mortgage's current customer base through direct mail, "statement stuffers" and outbound telemarketing. In addition, Central Retail maintains a comprehensive database on all customers with whom it has had contact and markets to these potential customers in an effort to convert them to application.

WHOLESALE MARKETING.  New Century Mortgage's Wholesale Division's marketing strategy focuses on the sales efforts of its account executives, and on providing prompt, consistent service to brokers and their customers. These efforts are supplemented with the Division's e-commerce website, direct mail and fax programs to brokers, advertisements in trade publications, in-house production of collateral sales material, seminar sponsorships, tradeshow attendance and periodic sales contests.

WORTH FUNDING MARKETING.  Worth's Funding marketing strategy relies on direct broker solicitation, fax programs as well as convention and conference attendance.

8

FINANCING LOAN ORIGINATIONS AND LOANS HELD FOR SALE

    The Company requires access to credit facilities in order to originate and purchase mortgage loans and to hold them pending their sale or securitization. The Company relies on a $265 million short-term warehouse credit facility led by U.S. Bank National Association to fund its originations and purchases. The Company also relies on aggregation financing facilities totaling $900 million with Salomon Brothers Realty Corp. and Morgan Stanley Dean Witter Mortgage Capital Inc. to finance the loans pending their sale or securitization. See "—Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources."

PRODUCT TYPES

    The Company offers both fixed-rate and adjustable-rate loans ("ARMs"), as well as loans with an interest rate that is initially fixed for a period of time and subsequently converts to an adjustable rate. Most of the ARMs originated by the Company are offered at a low initial interest rate, sometimes referred to as a "start rate." At each interest rate adjustment date, the Company adjusts the rate, subject to certain limitations on the amount of any single adjustment and a cap on the aggregate of all adjustments.

    The Company's borrowers fall into six sub-prime risk classifications. The Company's products are available at different interest rates and with different origination and application points and fees depending on the particular borrower's risk classification (see "Business—Underwriting Standards"). Borrowers may choose to increase or decrease their interest rate through the payment of different levels of origination fees and many of the Company's fixed-rate borrowers, in particular, choose to "buy down" their interest rate through the payment of additional origination fees. The Company's maximum loan amounts are generally $500,000 with a loan-to-value ratio of up to 80%. The Company does, however, offer larger loans with lower loan-to-value ratios on a case-by-case basis, and also offers products that permit a loan-to-value ratio of up to 90% for selected borrowers with a Company risk classification of "A+" or "A-."

    Loans originated or purchased by the Company in 2000 had an average loan amount of approximately $108,000 and an average loan-to-value ratio of approximately 78.6%. If permitted by applicable law and agreed to by the borrower, the Company's loans may also include a prepayment charge that is triggered by the loan's full or substantial prepayment early in the loan's term. Approximately 84% of the loans originated or purchased by the Company in 2000 included some form of prepayment provision.

UNDERWRITING STANDARDS

    The Company originates or purchases its mortgage loans in accordance with the underwriting criteria (the "Underwriting Guidelines") described below. The loans the Company originates or purchases generally do not satisfy conventional underwriting standards, such as those utilized by Fannie Mae and Freddie Mac. Therefore, the Company's loans are likely to have higher delinquency and foreclosure rates than portfolios of mortgage loans underwritten to Fannie Mae and Freddie Mac standards.

    The Underwriting Guidelines take into account the applicant's credit history and capacity to repay the proposed loan as well as the secured property's value and adequacy as collateral for the loan. Each applicant completes an application that includes information on the applicant's liabilities, income, credit history, employment history and personal information. Based on review of the loan application and other applicant data against the Underwriting Guidelines, the Company determines the loan terms, including the interest rate and maximum loan-to-value ratio.

CREDIT HISTORY.  The Underwriting Guidelines require a credit report on each applicant from a credit reporting company. In evaluating the applicant's credit history, the Company utilizes credit bureau risk

9

scores (a "FICO score"), a statistical ranking of likely future credit performance developed by Fair, Isaac & Company and the three national credit data repositories—Equifax, TransUnion and Experian.

COLLATERAL REVIEW.  All mortgaged properties are appraised by qualified independent appraisers prior to the loan's funding. The appraiser inspects and appraises the property and verifies that it is in acceptable condition. Following each appraisal, the appraiser prepares a report which includes a market value analysis based on recent sales of comparable homes in the area and, when deemed appropriate, replacement cost analysis based on the current cost of constructing a similar home. All appraisals are required to conform to the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal Foundation and are generally on forms acceptable to Fannie Mae and Freddie Mac. The Underwriting Guidelines require a review of the appraisal by a qualified employee of the Company or by a qualified review appraiser retained by the Company. The Underwriting Guidelines then require the Company's underwriters to be satisfied that the value of the property being financed, as indicated by the appraisal, currently supports the outstanding loan balance.

INCOME DOCUMENTATION.  The Underwriting Guidelines include three levels of applicant documentation requirements, referred to as the "Full Documentation," "Limited Documentation" and "Stated Income Documentation" programs. Under the Full Documentation program, applicants generally are required to submit two written forms of verification of stable income for at least twelve months. Under the Limited Documentation program, applicants are generally required to submit twelve consecutive monthly bank statements on their individual bank account. Under the Stated Income Documentation program, an applicant may be qualified based upon monthly income as stated on the mortgage loan application if the applicant meets certain criteria. All the foregoing programs require that, with respect to salaried employees, the applicant's employment be verified by telephone. Verification of the source of funds (if any) required to be deposited by the applicant into escrow in the case of a purchase money loan is required. Under each of the programs, the Company reviews the applicant's source of income, calculates the amount of income from sources indicated on the loan application or similar documentation, reviews the applicant's credit history, calculates the debt service-to-income ratio to determine the applicant's ability to repay the loan, reviews the type and use of the property being financed, and reviews the property. In determining the applicant's ability to repay the loan, the Company's underwriters use a qualifying rate that is equal to the initial interest rate on such loan (in the case of other LIBOR-based loans).

UNDERWRITING REQUIREMENTS.  In general, the maximum loan amount for mortgage loans originated under the programs is $500,000. The Underwriting Guidelines permit loans on one-to-four-family residential properties to have (i) a loan-to-value ratio at origination of up to 90%, with respect to non-conforming first liens, (ii) a combined loan-to-value ratio at origination of up to 100% with respect to non-conforming second liens and (iii) a combined loan-to-value ratio at origination of up to 100% with respect to conforming second liens, in each case depending on, among other things, the purpose of the mortgage loan, a borrower's credit history, repayment ability and debt service-to-income ratio, as well as the type and use of the property. With respect to mortgage loans secured by mortgaged properties acquired by a borrower under a "lease option purchase," the loan-to-value of the related mortgage loan is based on the lower of the appraised value at the time of origination of such mortgage loan or the sale price of the related mortgaged property if the "lease option purchase price" was set less than twelve months prior to origination and is based on the appraised value at the time of origination if the "lease option purchase price" was set twelve months or more prior to origination.

10

    The Company's Underwriting Guidelines for first lien mortgage loans have the following categories and criteria for grading the potential likelihood that an applicant will satisfy the repayment obligations of a mortgage loan:

SUMMARY OF PRINCIPAL UNDERWRITING GUIDELINES (1)

(1)

The letter grades applied to each risk classification reflect the Company's internal standards and do not necessarily correspond to the classifications used by other mortgage lenders. "LTV" means loan-to-value ratio.

(2)

The maximum LTV set forth in the table is for borrowers providing full documentation. The LTV is reduced 5% for stated income applications, if applicable. Additionally, if the borrower's FICO score meets or exceeds the risk category and debt ratio guidelines, consumer credit may be disregarded.

11

MORTGAGE CREDIT ONLY PROGRAM.  In addition to the five risk grade categories described above, New Century Mortgage also has a Mortgage Credit Only program. This program uses the applicant's mortgage payment history as the primary factor in qualifying the applicant's ability to repay the loan. The Mortgage Credit Only program allows no more than three 30-day late payments and no 60-day late payments within the last 12 months on an existing mortgage loan and must be current at funding. An existing mortgage loan is not required to be current at the time the application is submitted. Derogatory credit report items are allowed as to non-mortgage credit. Mortgage Credit Only loans are not available under the Stated or Limited Income Documentation program. No bankruptcy or notice of default filings may have occurred during the preceding two years; provided, however, that if the borrower's bankruptcy has been discharged during the past two years and the borrower has re-established a credit history otherwise complying with the credit parameters set forth in this paragraph, the borrower may then qualify under the Mortgage Credit Only program. The mortgaged property must be in at least average condition. A maximum loan-to-value of 85% is permitted for a mortgage loan on a single-family owner-occupied property. A maximum loan-to-value of 80% is permitted for a mortgage loan on a non-owner occupied property, second home, owner-occupied condominium, or two- to four-family residential property. The debt service-to-income ratio is generally limited to a maximum of 55%.

HOME SAVER PROGRAM.  The Company has established a sub-category of its C- credit grade (the "Home Saver Program") for borrowers faced with at least one of the following credit scenarios: (i) the borrower has an existing mortgage currently in foreclosure, (ii) the borrower is subject to a notice of default filing, or (iii) the borrower has had a serious mortgage delinquency for more than one 120 day period in the last 12 months or is more than 90 days late at the time of funding. The Home Saver Program is available only to Full Documentation borrowers and permits a maximum loan-to-value of 65% and a maximum debt service-to-income ratio of 55%. The maximum loan is $300,000 and all derogatory credit report items must either be brought current or paid through the loan proceeds. A maximum of 3% of the loan proceeds may be paid to the borrower in cash. If the borrower is in an open Chapter 13 or Chapter 11 bankruptcy, the bankruptcy must be discharged through the proceeds of the loan.

FICO SCORE PROGRAM.  The Company has introduced a "FICO Score Program" which uses the credit bureau score of the primary borrower to evaluate their consumer credit profile. The Company uses the credit or FICO score, in conjunction with the applicant's mortgage repayment history and any instance of bankruptcy or mortgage default, to gauge creditworthiness. The risk grade categories are determined by a credit score range that aligns with the Company's letter grade categories for its core products. The FICO score program allows the same income documentation types, full documentation, limited documentation and stated income documentation on loans that are assigned a letter risk grade. Adjustments to loan-to-value, property type, occupancy type, debt-to-income ratios and income documentation type are similar to the Company's basic products. All stated income documentation on non-owner occupied properties is not allowed under this program.

EXCEPTIONS.  The categories and criteria described in the above table are guidelines only. On a case-by-case basis, the Company may determine that an applicant warrants a loan-to-value exception, a debt service-to-income ratio exception, or another exception to the Underwriting Guidelines. The Company may allow such an exception if the application reflects certain compensating factors such as low LTV, pride of ownership, a maximum of one 30-day late payment on all mortgage loans during the last 12 months, and stable employment or ownership of current residence. The Company may also allow an exception if the applicant places a down payment through escrow of at least 20% of the purchase price of the mortgage property or if the new loan reduces the applicant's monthly aggregate mortgage payment by 25% or more. The trend in loans containing at least one exception declined during the course of 2000 from 37.33% in the first quarter to 36.61% in the second quarter, 28.79% in the third quarter and 26.26% in the fourth quarter.

12

    The Company evaluates its Underwriting Guidelines on an ongoing basis and periodically modifies the Underwriting Guidelines to reflect the Company's current assessment of various issues related to an underwriting analysis. The Company also maintains separate underwriting guidelines appropriate to its non-conforming second lien mortgage loans, and adopts new underwriting guidelines appropriate to new loan products it offers.

AUTOMATED CREDIT GRADING.  During the third quarter of 2000, the Company implemented an automated credit grading process to eliminate errors in reading and interpreting credit reports and assigning the correct grade to individual loans. This process was completely integrated into the Company's underwriting process during the fourth quarter of 2000 resulting in a marked improvement in the grading accuracy of the Company's loans.

13

LOAN PRODUCTION BY BORROWER RISK CLASSIFICATION

    The following table sets forth information concerning the Company's principal balance of fixed rate and adjustable rate loan production by borrower risk classification for the periods shown:

14

GEOGRAPHIC DISTRIBUTION

    The following table sets forth aggregate dollar amounts (in thousands) and the percentage of all loans originated or purchased by the Company by state for the periods shown:

    The Company's loan production in California increased noticeably from the first quarter of 2000 to the fourth quarter of 2000 due primarily to the consolidation of the Company's production units on the east coast, the curtailment of unprofitable products in several other states and an increase in the Company's presence on the west coast.

LOAN SALES AND SECURITIZATIONS

    The Company's subsidiary, NC Capital Corporation, performs its secondary marketing functions. First, NC Capital buys loans from New Century Mortgage within a week or two after origination, paying a price that approximates the loans' secondary market value. NC Capital then sells the loans through both securitizations and bulk sales to institutional purchasers of whole loans. NC Capital is responsible for determining when and through which channel to sell the loans, and bears the risks of market fluctuations in the period between purchase and sale.

WHOLE LOAN SALES.  In a whole loan sale, the Company sells loans in bulk to a purchaser for a cash price that represents a premium over the principal balance of the loans sold. The sale may include releasing to the purchaser the servicing rights to the loans (a "servicing-released" sale) or the Company may retain the servicing rights (a "servicing-retained" sale). Until February 1997, the Company sold all loans through servicing-released whole loan sales. In February 1997, the Company began to sell loans through securitization and retain the servicing rights, while it continued to sell loans through whole loan sales on a servicing-released basis. In December 1997, the Company began selling loans through whole loan sales on a servicing-retained basis.

    In 2000, whole loan sales accounted for $3.1 billion, or 75.3% of the Company's total loan sales. Of this amount, 32.4% were sold servicing-retained and 67.6% were sold servicing-released. In the servicing-retained sales, the Company agreed to service the loans for a fee of 0.50% per year of the outstanding principal balance of the loans. The weighted average sales price of the Company's 2000 whole loan sales was equal to 3.11% of the original principal balance of the loans sold, including premiums paid by investors for servicing rights.

15

    The Company seeks to maximize its premium on whole loan sale revenue by closely monitoring institutional purchasers' requirements and focusing on originating or purchasing the types of loans that meet those requirements and for which institutional purchasers tend to pay higher premiums. During the year ended December 31, 2000, the Company sold $1.3 billion in loans to CS First Boston and $483.4 million in loans to CIT, which represented 31.9% and 11.6%, respectively, of total loans sold.

    Whole loan sales are made on a non-recourse basis pursuant to a purchase agreement containing customary representations and warranties by the Company regarding the loan characteristics and the origination process. The Company, therefore, may be required to repurchase or substitute loans in the event of a breach of its representations and warranties. In addition, the Company generally commits to repurchase or substitute a loan if a payment default occurs within the initial months following the date the loan is funded, unless other arrangements are made between the Company and the purchaser. The Company is also required in some cases to repurchase or substitute a loan if the loan documentation is alleged to contain fraudulent misrepresentations made by the borrower.

SECURITIZATIONS.  During the first three quarters of 2000, the Company completed three securitization transactions, two through Salomon Smith Barney, Inc. and one through Greenwich Capital Markets, Inc.

    In a securitization, the Company sells a pool of loans to a trust for the following: (i) a cash purchase price and (ii) a certificate evidencing its "residual interest" ownership in the trust. The trust raises the cash portion of the purchase price by selling senior certificates representing senior interests in the loans in the trust. Following the securitization, purchasers of senior certificates receive the principal collected, including prepayments, on the loans in the trust. In addition, they receive a portion of the interest on the loans in the trust equal to the specified "investor pass-through interest rate" on the principal balance. The Company receives the cash flows from the residual interests, after payment of servicing fees, guarantor fees and other trust expenses, and provided the specified over-collateralization requirements are met.

    The Company recognizes gain on sale of the loans, which represents the excess of the cash proceeds received in the security and the estimated fair value of the residual interests, less closing and underwriting costs, over the carrying value of the loans sold, in the fiscal quarter in which such loans are sold. At the same time as the Company recognizes the gain on sale, the Company records the residual interests as assets on its balance sheet. The recorded values of these residual interests are amortized as distributions are received from the trust holding the respective loan pool.

    Two of the 2000 securitizations were credit enhanced by an insurance policy provided through a monoline insurance company as well as lender-paid private mortgage insurance. The other securitization was credit enhanced through the use of subordinated certificates instead of an insurance policy. The Company used credit enhancements in each of its securitizations to allow the senior certificates in the related trusts to receive ratings of "AAA" from Standard & Poor's Rating Services and "Aaa" from Moody's Investors Service, Inc. The Company also provides credit enhancement in the form of an over-collateralization account.

    There is no assurance that actual performance of any of the Company's securitized loan portfolios will be consistent with the Company's estimates and assumptions. To the extent that actual prepayment speeds, losses or market discount rates materially differ from the Company's estimates, the estimated value of its residuals may increase or decrease, which may have a material impact on the Company's results of operations, financial condition and liquidity.

    During 2000, the Company repurchased $16.4 million in loans out of one of its 1998 securitizations. Such repurchases are permitted only when the applicable loan defaults and are undertaken by the Company in order to avoid disruption of cash flow from certain securitization trusts and to provide the Company with maximum flexibility in resolving problem loans. In addition, during the year ended December 31, 2000, the Company recorded a total of $67.0 million in write-downs to the carrying value of its residual securities. These adjustments were the result of (i) continued increases in interest rates during

16

parts of the year, which decreased the excess spread cash flow in the adjustable rate securities, (ii) an increase in the discount rate by 1%, (iii) the "call" of the bonds on the Company's 1998-NC5 security in the fourth quarter, and (iv) the monitoring of actual vs. expected assumptions. As a result, the Company has increased its prepayment speed and loss assumptions used in its valuation methodology. See "—Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations."

LOAN SERVICING AND DELINQUENCIES

SERVICING.  Servicing of loans includes collecting and remitting loan payments, making required advances, accounting for principal and interest, holding escrow or impound funds for payment of taxes and insurance and, if applicable, contacting delinquent borrowers and supervising foreclosures and property dispositions in the event of unremedied defaults.

    Historically, the Company has retained the servicing rights on most loans it sells through securitizations and a portion of the loans its sells in whole loan sales. In addition, some purchasers of "servicing-released" whole loans request the Company to continue to act as servicer for an interim period following the sale. Finally, the Company services all of the loans its originates and purchases during the 30 to 90-day period pending their sale or securitization.

    As of December 31, 2000, the Company's servicing portfolio consisted of 59,323 loans with an aggregate principal balance of approximately $6.1 billion, of which 3,721 loans with an aggregate principal balance of $401.1 million were held for sale and serviced on an interim basis, 53,372 loans with an aggregate principal balance of $5.3 billion were serviced for securitizations, and 2,230 loans with an aggregate principal balance of $306.4 million were serviced on behalf of the whole loan purchasers thereof.

    In March 2001, the Company sold the servicing rights on approximately $4.8 billion of its servicing portfolio to Ocwen Federal Bank FSB for $19.7 million. The transfer of the Company's servicing portfolio to Ocwen's Orlando, Florida servicing platform is scheduled to be completed by August 1, 2001. After the transfer date, the Company will no longer receive servicing fees and related income, on this portion of the portfolio but will still continue to receive the interest on the residual securities.

DELINQUENCIES AND FORECLOSURES.  Loans originated or purchased by the Company are secured by mortgages, deeds of trust, security deeds or deeds to secure debt, depending upon the prevailing practice in the state in which the property securing the loan is located. Depending on local law, foreclosure is effected by judicial action or non-judicial sale, and is subject to various notice and filing requirements. In general, the borrower, or any person having a junior encumbrance on the real estate, may cure a monetary default by paying the entire amount in arrears plus other designated costs and expenses incurred in enforcing the obligation during a statutorily prescribed reinstatement period. Generally, state law controls the amount of foreclosure expenses and costs, including attorney's fees, which may be recovered by a lender. After the reinstatement period has expired without the default having been cured, the borrower or junior lien-holder no longer has the right to reinstate the loan and may be required to pay the loan in full to prevent the scheduled foreclosure sale. Where a loan has not yet been sold or securitized, the Company will generally allow a borrower to reinstate the loan up to the date of foreclosure sale.

    Although foreclosure sales are typically public sales, third-party purchasers rarely bid in excess of the lender's lien because of the difficulty of determining the exact status of title to the property, the possible deterioration of the property during the foreclosure proceedings and a requirement that the purchaser pay for the property in cash or by cashier's check. Thus, the foreclosing lender often purchases the property from the trustee or referee for an amount equal to the sum of the principal amount outstanding under the loan, accrued and unpaid interest and the expenses of foreclosure. Depending on market conditions, the ultimate proceeds of the sale may not equal the lender's investment in the property.

17

DELINQUENCY REPORTING.  New Century commenced receiving applications for mortgage loans under its regular lending program in February 1996 and during 1996 sold all of its loans on a whole loan, servicing-released basis. The Company began selling loans through securitizations in 1997 and in connection with these securitizations has established reporting systems to track historical delinquency, bankruptcy, foreclosure and default experience for the loans included in its securitizations as well as the Company's total portfolio of loans. Current delinquency and loss information is not necessarily representative of future delinquencies and losses.

    The following table provides information as of December 31, 2000 for the Company's 1997, 1998, 1999 and 2000 securitized loans delinquent over 60 days (dollars in thousands):

NOTE: The delinquency percentages presented are based on the current balance of the loans in each of the credit grades listed.

    The foregoing table indicates that, as anticipated, the Company is experiencing higher rates of delinquency on lower credit grade loans. In addition, the Company has repurchased loans from its first three 1997 and one of its 1998 securitizations. The agreements governing the securitizations permit such repurchases, but only to the extent the loans being repurchased are more than 90 days delinquent. The Company elected to make the repurchases in order to avoid disruption of cash flow from the 1997-NC1, NC2 and NC3 and 1998-NC5 trusts and to provide the Company with maximum flexibility in resolving problem loans.

    In order to provide the Company additional flexibility in trying to maximize recovery on its delinquent loans and loans in foreclosure, the Company's Salomon and Morgan Stanley aggregation financing arrangements permit financing of a limited number of such loans at a reduced financing rate based on the value of the underlying property. In addition, Salomon permits financing of real property owned ("REO") by the Company upon foreclosure on delinquent loans. This facility allows the Company additional flexibility in disposing of those properties for the highest possible price.

SALE OF SERVICING RIGHTS TO OCWEN FEDERAL BANK FSB

    In March 2001, the Company sold the servicing rights on approximately $4.8 billion of its servicing portfolio, comprising 25 asset-backed securities, to Ocwen Federal Bank FSB for $19.7 million. The Company will retain approximately $1 billion in mortgage servicing rights on loans that have not been securitized. These servicing rights may be sold to Ocwen in future periods. Ocwen also purchased the Company's outstanding servicing advance receivables and assumed responsibility for all future servicing advance obligations on these 25 asset-backed securities. As part of the transaction, the Company also agreed to sell Ocwen servicing rights with respect to up to $3 billion in mortgage loans between March 2001 and December 31, 2002 at a price to be determined based on the characteristics of those servicing rights. With the cash proceeds from the Ocwen transaction, the Company was able to (i) repay the portion of its warehouse line of credit secured by servicing advances, (ii) repay the outstanding balance

18

on its $22.5 million working capital line of credit with US Bank, (iii) purchase interest rate "hedge" protection for the residual cash flows, and (iv) increase its liquidity.

    Ocwen is one of the country's highest-rated specialty servicers and has a strong capital position. The Company believes that it will provide bondholders and loan buyers with greater comfort that the servicer will be able to achieve consistent collateral performance throughout the life of the loans. The transfer of the Company's servicing portfolio to Ocwen's Orlando, Florida servicing platform is scheduled to be completed by August 1, 2001. There can be no assurance that the parties will be able to complete the transfer by that date.

    After August 1, 2001, the Company does not expect to maintain a separate full-service servicing facility. The Company is exploring the possibility of selling its existing servicing platform to a third party or offering limited servicing-related services. The Company expects it will incur one-time expenses relating to the closure or sale of its servicing operations of approximately $1.5 million.

U.S. BANCORP INVESTMENT AND STRATEGIC ALLIANCE

    U.S. Bancorp, a bank holding company with total assets of approximately $160 billion, owns common stock and preferred stock in the Company that, if converted, would together represent approximately 24.8% of the Company's total outstanding common stock. In the fourth quarter of 1999, U.S. Bancorp provided $20 million of subordinated debt to the Company.

    During 2000, U.S. Bancorp provided an additional $20 million in subordinated debt, and also extended the maturity of the total subordinated debt to June 2002. The subordinated debt bears interest at a rate of 12% per year. In connection with the provision of additional subordinated debt and the term extension, the Company issued U.S. Bancorp's subsidiary, U.S. Bank National Association, warrants exercisable for up to 725,000 shares of the Company's common stock at an exercise price equal to the fair market value on the grant date. If all stock and warrants were converted by U.S. Bank, their interest in the Company's total outstanding common stock would be approximately 28.5%.

    During 2000, U.S. Bank National Association also provided up to an additional $22.5 million in financing to the Company secured by servicing advance receivables not covered by the principal warehouse credit agreement as well as by the Company's loans held for sale that are not already pledged elsewhere. The facility was structured as a weekly rolling repurchase agreement with an interest rate equal to 12.0%.

    In January 2001, U.S. Bank forfeited its rights to the 725,000 warrants issued in connection with the April 2000 subordinated debt financing transaction with the Company. The forfeiture decision arose in the course of the Federal Reserve's review of the pending U.S. Bancorp/Firstar Corp. merger. Federal regulators had concluded that U.S. Bancorp's rights under its shareholder agreements with the Company's founding managers would result in the Company being deemed an "affiliate" under the Federal Reserve Act. In order to avoid the complications relating to affiliate status and to facilitate the merger approval process, U.S. Bancorp elected to forfeit the warrants and terminate the shareholder agreements. As a result, U.S. Bancorp's equity interest now stands at 24.8% of the Company.

    In March 2001, in connection with the closing of the Ocwen servicing rights purchase, U.S. Bancorp agreed to extend the maturity of its $40 million in subordinated debt until December 31, 2003.

    On March 29, 2001, U.S. Bancorp notified the Company that it was terminating its right to representation on the Company's Board of Directors. U.S. Bancorp received this right under its 1998 Preferred Stock Purchase Agreement with the Company. The two U.S. Bancorp-designated directors currently serving on the Board remain directors as of the date hereof, but no longer serve as designees of U.S. Bancorp.

19

INSURANCE AGENCY

    During 2000, the Company established an affiliated insurance agency, NC Insurance Services, Inc., in order to be able to offer certain insurance products to the Company's customers. The agency's revenues during 2000 were $1.7 million. The vast majority of this revenue was from commissions earned on the placement of hazard and flood collateral protection insurance. The agency is also beginning to offer Accidental Death and Dismemberment coverage to the Company's customers, and is evaluating a variety of other insurance products that might be of interest to those customers.

    Upon the transfer of the Company's servicing rights to Ocwen, the Company will no longer have the ability to offer insurance products to the mortgagors on the Company's securitized loans. However, the Company plans to continue to offer insurance products from time to time to the borrowers on the Company's loans held for sale. The Company may also begin offering credit insurance products to borrowers at origination, although the Company does not intend to offer any single premium insurance products.

INTEREST RATE RISK MANAGEMENT

    The Company's profitability may be directly affected by changes in interest rates. First, such changes may affect the Company's ability to earn a spread between the interest received on its loans and its funding costs. Second, a substantial and sustained increase in interest rates could adversely affect borrower demand for the Company's products. Third, during periods of rising interest rates, the value and profitability of the Company's loans may also be negatively impacted from the date of origination or purchase until the date the Company sells or securitizes such loans. Fourth, the Company's adjustable rate mortgage loans have a life rate cap above which the interest rate on the loan may not rise. In the event of general interest rate increases, the rate of interest on these mortgage loans could be limited, while the rate payable on the senior certificates representing interests in a securitization trust into which such loans are sold may be uncapped, which would reduce the amount of cash the Company receives over the life of its residual interests, thereby requiring the Company to reduce the carrying value of such residual interests. Fifth, a significant decrease in interest rates could increase the rate at which loans are prepaid, which would also reduce the amount of cash the Company receives over the life of its residual interests. Either of the fourth or fifth events could require the Company to reduce the carrying value of its residual interests, which would have a material adverse effect on the Company's results of operations, financial condition and business prospects

COMPETITION

    The Company continues to face intense competition in the business of originating, purchasing and selling mortgage loans. The Company's competitors include other consumer finance companies, mortgage banking companies, commercial banks, credit unions, thrift institutions, credit card issuers and insurance finance companies. Most notably, in recent quarters, some large, diversified financial corporations have purchased several of the Company's competitors. In addition, other large financial institutions have gradually been expanding their subprime lending capabilities. Many of these companies have access to capital at a cost lower than the Company's cost of capital under its warehouse, aggregation and residual financing facilities. In addition, many of these competitors have considerably greater technical and marketing resources than the Company.

    Competition among industry participants can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and term of the loan, loan origination fees and interest rates. Additional competition may lower the rates the Company can charge borrowers, thereby potentially lowering gain on future loan sales and securitizations. To the extent any of the Company's competitors significantly expands its activities in the Company's markets, the Company

20

could be materially adversely affected. Fluctuations in interest rates and general economic conditions may also affect the Company's competitive position. During periods of rising rates, competitors that have locked in low borrowing costs may have a competitive advantage. During periods of declining rates, competitors may solicit the Company's customers to refinance their loans.

    The Company believes that one of its key competitive strengths is its employees, with their strong commitment to customer service and their team-oriented approach. In addition to the strength of the Company's work force, the Company believes that its competitive strengths include: (i) providing a high level of service to brokers and their customers; (ii) offering competitive loan programs for borrowers whose needs are not met by conventional mortgage lenders; (iii) the Company's high-volume targeted direct mail marketing program, and (iv) its performance-based compensation structure which allows the Company to attract, retain and motivate qualified personnel.

REGULATION

    The mortgage lending industry is a highly regulated industry. The Company's business is subject to extensive and complex rules and regulations of, and examinations by, various state and federal government authorities. These regulations impose obligations and restrictions on the Company's loan origination, loan purchase and servicing activities. In addition, these regulations may limit the interest rates, finance charges and other fees the Company may assess, mandate extensive disclosure to the Company's customers, prohibit discrimination and impose multiple qualification and licensing obligations on the Company. Failure to comply with these requirements may result in, among other things, loss of approved licensing status, demands for indemnification or mortgage loan repurchases, certain rights of rescission for mortgage loans, class action lawsuits, administrative enforcement actions and civil and criminal liability. Management of the Company believes that the Company is in compliance with these rules and regulations in all material respects.

    The Company's loan origination and loan purchase activities are subject to the laws and regulations in each of the states in which those activities are conducted. For example, state usury laws limit the interest rates the Company can charge on its loans. As of December 31, 2000, the Company was licensed or exempt from licensing requirements by the relevant state banking or consumer credit agencies to originate first mortgages in 50 states and the District of Columbia and second mortgages in 48 states and the District of Columbia. The Company's lending activities are also subject to various federal laws, including the Truth in Lending Act, Homeownership and Equity Protection Act of 1994, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act, and their implementing regulations.

    The Company is subject to certain disclosure requirements under the Truth in Lending Act ("TILA") and Regulation Z promulgated under TILA. TILA is designed to provide consumers with uniform, understandable information with respect to the terms and conditions of loan and credit transactions. TILA gives consumers, among other things, a three business day right to rescind certain refinance loan transactions originated by the Company.

    The Company is also subject to the Homeownership and Equity Protection Act of 1994 (the "High Cost Mortgage Act"), which amends TILA. The High Cost Mortgage Act generally applies to consumer credit transactions secured by the consumer's principal residence, other than residential mortgage transactions, reverse mortgage transactions or transactions under an open end credit plan, in which the loan has either (i) total points and fees upon origination in excess of the greater of eight percent of the loan amount or $465, or (ii) an annual percentage rate of more than ten percentage points higher than United States Treasury securities of comparable maturity ("Covered Loans"). The High Cost Mortgage Act imposes additional disclosure requirements on lenders originating Covered Loans. In addition, it prohibits lenders from, among other things, originating Covered Loans that are underwritten solely on the basis of the borrower's home equity without regard to the borrower's ability to repay the loan and including

21

prepayment fee clauses in Covered Loans to borrowers with a debt-to-income ratio in excess of 50% or Covered Loans used to refinance existing loans originated by the same lender. The High Cost Mortgage Act also restricts, among other things, certain balloon payments and negative amortization features. The Company commenced originating and purchasing Covered Loans during 1997 and stopped originating and purchasing them in the second quarter of 2000. In 2000, Covered Loans accounted for approximately less than 1% of the Company's total loan originations and purchases.

    The Company is also required to comply with the Equal Credit Opportunity Act of 1974, as amended ("ECOA") and Regulation B promulgated thereunder, the Fair Credit Reporting Act, as amended, the Real Estate Settlement Procedures Act of 1974, as amended, and Regulation X promulgated thereunder and the Home Mortgage Disclosure Act of 1975, as amended. ECOA prohibits creditors from discriminating against applicants on the basis of race, color, sex, age, religion, national origin or marital status, because all or part of the applicant's income is derived from a publicly assisted program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. Regulation B restricts creditors from requesting certain types of information from loan applicants. The Fair Credit Reporting Act, as amended, requires lenders, among other things, to supply an applicant with certain information if the lender denied the applicant credit. The Real Estate Settlement Procedures Act mandates certain disclosures concerning settlement fees and charges and mortgage servicing transfer practices. It also prohibits the payment or receipt of kickbacks or referral fees in connection with the performance of settlement services. In addition, the Company is required to file an annual report with the Department of Housing and Urban Development pursuant to the Home Mortgage Disclosure Act, which requires the collection and reporting of statistical data concerning mortgage loan transactions.

    In the course of its business, the Company may acquire properties securing loans that are in default. There is a risk that hazardous or toxic waste could be found on such properties. In such event, the Company could be held responsible for the cost of cleaning up or removing such waste, and such cost could exceed the value of the underlying properties.

REGULATORY DEVELOPMENTS.  During 2000 and early 2001 there have been two areas of federal and state legislative and regulatory activity that could have a significant impact on the Company: privacy and predatory lending. The federal Gramm-Leach-Bliley financial reform legislation will impose additional privacy obligations on the Company with respect to its applicants and borrowers. The Company is preparing appropriate controls and procedures in order to comply with the law when it takes effect on July 1, 2001. In addition, several states are also considering even more stringent privacy legislation. If passed, a variety of inconsistent state privacy legislation could substantially increase the Company's compliance costs.

    In addition, several federal state and local laws and regulations have been adopted or are under consideration that are intended to eliminate so-called "predatory" lending practices. While well meaning, many of these laws and regulations impose overly broad restrictions on legitimate lending activities, including some of the Company's activities. There can be no assurance that these proposed laws, rules and regulations, or other such laws, rules or regulations, will not be adopted in the future. Such laws and regulations could have a material adverse impact on the Company's business by substantially increasing the costs of compliance with a variety of inconsistent federal, state and local rules, or restricting the Company's ability to charge rates and fees adequate to compensate it for the risk associated with certain loans.

22

BEST PRACTICES

    In an effort to prevent the Company from originating loans containing unfair terms or involving predatory practices, the Company has employed extensive policies and procedures:

•

Not offering loans with terms providing for balloon payments, negative amortization or reverse mortgages;

•

Not selling single premium insurance products with its loans;

•

Maintaining caps on the points and fees that can be charged to borrowers;

•

Directing marketing efforts throughout the broader geographic areas in which the Company's branches are located;

•

Maintaining a rigorous appraisal review process;

•

Surveying the Company's customers in order to confirm satisfaction;

•

Performing regular random and targeted audits to confirm adherence to fair lending laws and principles;

•

Resolving customer complaints promptly and fairly;

•

Monitoring the conduct of the Company's brokers; and

•

Training the Company's employees to adhere to fair lending principles.

    More detailed information regarding the Company's Best Practices are available at the Company's website, www.ncen.com.

    The Company plans to continue to review, revise and improve its practices in order to enhance its fair lending efforts and support the goal of eliminating predatory lending practicies.

EMPLOYEES

    At December 31, 2000, the Company employed 1,485 full-time employees and 26 part-time employees. None of the Company's employees is subject to a collective bargaining agreement. The Company believes that its relations with its employees are satisfactory.

23

EXECUTIVE OFFICERS OF THE REGISTRANT

    The following table sets forth the name, age and position with the Company of each person who is an executive officer or key employee of the Company.

(1)

New Century Mortgage Corporation ("New Century Mortgage") is a wholly-owned subsidiary of the Company.

(2)

NC Capital Corporation ("NC Capital") is a wholly-owned subsidiary of New Century Mortgage.

    Robert K. Cole has been the Chairman of the Board and Chief Executive Officer of the Company since December 1995 and a director of the Company since November 1995. Mr. Cole also serves as a director on the Board of Directors of New Century Mortgage. From February 1994 to March 1995, he was the President and Chief Operating Officer-Finance of Plaza Home Mortgage Corporation ("Plaza Home Mortgage"), a publicly-traded savings and loan holding company specializing in the origination and servicing of residential mortgage loans. In addition, Mr. Cole served as a director of Option One Mortgage Corporation ("Option One"), a subsidiary of Plaza Home Mortgage specializing in the origination, sale and servicing of sub-prime mortgage loans. From June 1990 to January 1994, Mr. Cole was the President of Triple Five, Inc., an international real estate development company. Previously, Mr. Cole was the President

24

of operating subsidiaries of NBD Bancorp and Public Storage, Inc. Mr. Cole received a Masters of Business Administration degree from Wayne State University.

    Brad A. Morrice has been Vice Chairman of the Company since December 1996, President, and a director of the Company since November 1995 and Chief Operating Officer of the Company since January 2001. Mr. Morrice also served as the Company's General Counsel from December 1995 to December 1997 and the Company's Secretary from December 1995 to May 1999. In addition, Mr. Morrice serves as Chairman and Chief Executive Officer of New Century Mortgage and NC Capital. From February 1994 to March 1995, he was the President and Chief Operating Officer-Administration of Plaza Home Mortgage, after serving as its Executive Vice President, Chief Administrative Officer since February 1993. In addition, Mr. Morrice served as General Counsel and a director of Option One. From August 1990 to January 1993, Mr. Morrice was a partner in the law firm of King, Purtich & Morrice, where he specialized in the legal representation of mortgage banking companies. Mr. Morrice previously practiced law at the firms of Fried, King, Holmes & August and Manatt, Phelps & Phillips. He received his law degree from the University of California, Berkeley (Boalt Hall) and a Masters of Business Administration degree from Stanford University.

    Edward F. Gotschall has been Vice Chairman of the Company since December 1996, Chief Financial Officer since August 1998, Chief Operating Officer Finance/Administration of the Company from December 1995 to August 1998 and a director of the Company since November 1995. Mr. Gotschall also serves as Chief Financial Officer and a director of New Century Mortgage. From April 1994 to July 1995, he was the Executive Vice President/Chief Financial Officer of Plaza Home Mortgage and a director of Option One. In December 1992, Mr. Gotschall was one of the co-founders and principal architect of the initial business plan for Option One and served as its Executive Vice President/Chief Financial Officer until April 1994. From January 1991 to July 1992, he was the Executive Vice President and Chief Financial Officer of The Mortgage Network, Inc., a retail mortgage banking company. Mr. Gotschall received his Bachelors of Science Degree in Business Administration from Arizona State University and received his CPA designation during his employment term with Touche Ross (now Deloitte & Touche) in Phoenix, Arizona.

    Patrick J. Flanagan has been Executive Vice President of the Company since August 1998. He has been President of NC Capital Corporation since December 1998 and a director of New Century Mortgage since May 1997. Since January 1997, Mr. Flanagan has been Executive Vice President and Chief Operating Officer of New Century Mortgage. Mr. Flanagan initially joined New Century Mortgage in May 1996 as Regional Vice President of Midwest Wholesale and Retail Operations. From August 1994 to April 1996, Mr. Flanagan was a Regional Manager with Long Beach Mortgage. From July 1992 to July 1994, he was an Assistant Vice President for First Chicago Bank, from February 1989 to February 1991, he was Assistant Vice President for Banc One in Chicago and from February 1991 to July 1992, he was a Business Development Manager for Transamerica Financial Services. Mr. Flanagan received his Bachelor of Arts degree from Monmouth College.

    George Anderson has been President-Retail Branch Operations of New Century Mortgage since August 1998 and a director of New Century Mortgage since November 1999. From 1994 to July 1998, Mr. Anderson was the President and CEO of Advanta Finance Corporation. From 1990 to 1994, Mr. Anderson served as Executive Vice President for Transamerica Financial Services and from 1984 to 1990, Mr. Anderson served as President and CEO of Nova Financial Services where he was responsible for the full spectrum of start-up activities associated with building a multi-state consumer finance company. In 1990, Nova was acquired by Transamerica Financial Services. From 1959 to 1984, Mr. Anderson served as Area Vice President for Transamerica Financial Services and was responsible for the mid-west and east coast operations of Transamerica. Mr. Anderson has over 37 years experience in the consumer finance and mortgage business.

25

    Shabi S. Asghar has been President-Wholesale Lending Division of New Century Mortgage since August 1998. He previously served as Senior Vice President-Wholesale Lending from January 1996 to August 1998 and has been a director of New Century Mortgage since May 1997. Mr. Asghar initially joined New Century Mortgage as Vice President, Mortgage Banking Operations and served in this position from December 1995 to January 1996. From June 1995 to November 1995, Mr. Asghar was the Southern California District Manager for Ford Consumer Finance. From September 1992 to March 1995, he was an Area Sales Manager for Long Beach Mortgage and from June 1988 to September 1992, he was a Business Development Manager for Transamerica Financial Services. Mr. Asghar received his Bachelor of Science degree from California State University at Northridge.

    Kirk Redding has been President-Central Retail Division of New Century Mortgage since December 2000 when PWF Corporation ("Primewest") merged with New Century Mortgage Corporation. Mr. Redding also became a director of New Century Mortgage in January 2001. Mr. Redding was previously the Chief Executive Officer of Primewest, a subsidiary of New Century Financial Corporation since January 1998, when it was acquired by the Company as its correspondent subsidiary. Mr. Redding was the owner of Primewest since its inception in 1992. Prior to creating Primewest, Mr. Redding was a Senior Loan Officer with Mission Viejo National Bank from 1989 to 1992. He received his Bachelors of Science Degree in Business/Marketing from Long Beach State University of California.

    Larry Moretti has been Senior Vice President and Chief Information Officer of the Company and Chief Information Officer of New Century Mortgage since May 1999. Mr. Moretti became Chief Administrative Officer and a director of New Century Mortgage in January 2001. Prior to joining New Century, Mr. Moretti was Senior Information Systems Account Manager for TRW Space and Electronics Group from 1997 to May 1999. From 1994 to 1999, Mr. Moretti also had his own consulting firm, Telenet Solutions, which provided technology services to the communications industry. Mr. Moretti was previously manager of Information Technology Support Systems for Transamerica Specialty Financial from 1975 to 1994. Mr. Moretti has over 25 years experience in the communications and technology industries.

26

RISK FACTORS

Stockholders and prospective purchasers of the Company's Common Stock should consider carefully the following factors, as well as the other information appearing elsewhere in this Form 10-K, in evaluating an investment in the Company. This Form 10-K may contain forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Form 10-K.

LIQUIDITY; ACCESS TO FUNDING SOURCES

    The Company's business requires substantial cash to support its operating activities and growth plans. At present, the Company's operating uses of cash continue to exceed its operating sources of cash.

    The Company requires access to short-term warehouse and aggregation credit facilities in order to fund loan originations and purchases pending the pooling and sale of such loans. The Company's sole credit facility for funding loan originations is its $265 million U.S. Bank Warehouse Line of Credit, which expires in May 2001. The Company is in preliminary discussions regarding its renewal.

    The Company also has residual financing agreements with Salomon Brothers Realty Corp., Greenwich Capital Financial Products, Inc., PaineWebber Real Estate Securities Inc. and Countrywide Warehouse Lending, pursuant to which each provides the Company with financing secured by residual interests that the Company retained in securitizations and NIM transactions on which each was the lead underwriter or placement agent. The amount of financing provided to the Company under its aggregation credit facilities and its residual financing agreements depends in large part on each lender's valuation of the mortgage loans, based on current market conditions, and residual interests, respectively, securing the financings. Except for the Salomon residual financing facility, each credit facility provides the lender the right, under certain circumstances, to reevaluate the collateral securing the Company's outstanding borrowings at any time and, in the event the lender determines that the value of the collateral has decreased, it has the right to initiate a margin call. A margin call would require the Company to provide the lender with additional collateral or to repay a portion of all of the outstanding borrowings. Any such margin call could have a material adverse effect on the Company's results of operations, financial condition and business prospects.

    In addition to the financing secured by the Company's loans and residual securities, the Company also has borrowed from U.S. Bank $40 million in subordinated debt secured by subordinate liens on the collateral pledged under the U.S. Bank warehouse agreement as well as certain rights to the Company's residuals. Unlike the warehouse, aggregation and residual financing borrowings, which the Company believes are secured by assets that would cover the borrowings in the event of a default, the Company does not currently have a source of funds to repay the subordinated debt in the event of a default. In addition, the Company intends to use cash flows from the Company's residual securities to repay this debt on or before its December 31, 2003 maturity. To the extent the Company's residual cash flows fall significantly short of projections, it would be more difficult for the Company to repay the subordinated debt when due. The Company's inability to obtain capital or financing to repay the subordinated debt upon its maturity would have a material adverse impact on the Company's results of operations, financial condition and business prospects.

    In addition, as of December 31, 2000, the Company had a current and deferred income tax liability of $15.4 million. This liability will be paid in future years as tax timing differences turn around.

    Moreover, to the extent that the Company is unable to renew or expand its access to credit facilities, the Company may have to undertake larger and/or more frequent capital markets financings than anticipated. Capital markets financings may result in greater than anticipated interest expense and shares

27

outstanding, which may have a dilutive impact on operating earnings or have a negative effect on the Company's financial condition.

    As a result of concerns about the ability of sub-prime mortgage lenders to sell their loans in the secondary market on favorable terms or at all, as well as concerns about the value of the residual interests retained in securitizations, a number of institutions have curtailed their lending to the sub-prime mortgage industry. Consequently, there can be no assurance that the Company will be able to renew, replace or add to its existing credit facilities, or that it will be able to undertake capital markets financings on favorable terms, if at all. To the extent that the Company is unable to access adequate capital to fund its loan production or to the extent that the Company is unable to access adequate capital to complete the desired level of securitizations, the Company may have to curtail its loan origination and purchase activities, which would have a material adverse impact on the Company's results of operations, financial condition and business prospects.

DEPENDENCE ON WHOLE LOAN SALES FOR FUTURE EARNINGS AND CASH

    The Company's current strategy is to rely more heavily on whole loan sales for future earnings and cash flow. In 2000, the Company sold 75.3% of its loan originations and purchases through whole loan sales to various institutional purchasers. The weighted average price for loans sold at a premium was 3.11%. However, during 2000 approximately 2.7% of its whole loan sales were loans sold at a discount to the outstanding principal balance. In the second half of 2000, as the Company transitioned to a predominately whole loan sales strategy, this figure increased to 3.9%. The discount sales typically consisted of first payment defaults and other delinquent loans, loans with document deficiencies or loans with other undesirable features. When the discounted loan sales are included in the calculation, the weighted-average price for all whole loan sales was 2.71% (excluding loans repurchased from securities). During the same period, the Company's all-in cost of originating loans was 3.06%, or approximately 35 basis points higher than the net sales price. In order to generate sufficient earnings and cash from whole loan sales, the Company plans to: (i) reduce its all-in acquisition cost for loans, (ii) reduce the percentage of loans sold at a loss and the average loss on the sale of those loans, and (iii) increase the price purchasers are willing to pay for the Company's loans sold at a premium. There can be no assurance that the Company will be able to achieve any of these objectives. To the extent the Company is unable to originate loans at a price lower than the weighted average sales price of loans (including both premium and discount sales), the Company's results of operations, financial condition and business prospects could be materially adversely affected.

RISKS RELATED TO THE CONDITION OF THE SECURITIZATION MARKET

    Although the Company reduced its securitization activity during 2000, the Company's business is still heavily influenced by the condition of the securitization market. This is because many of the Company's whole loan buyers intend to securitize the Company's loans. In addition, in 2001 the Company intends to evaluate securitization alternatives that could yield net cash proceeds to the Company equal to or greater than the proceeds received through whole loan sales, with no additional residual financing required. Accordingly, a decline in the securitization market could have a material adverse impact on the Company's results of operations, financial condition and business prospects.

RESIDUAL INTERESTS IN SECURITIZATIONS

    As of December 31, 2000 the value of the Company's residual interests from securitization transactions on the Company's balance sheet was $361.6 million. The value of these residuals is a function of the delinquency, loss, prepayment and discount rate assumptions the Company uses to determine their value. During 2000, the Company recorded reductions in the values of the residuals by $67.0 million as a result of changes in those assumptions that the Company believed to be prudent in light of actual pool

28

performance data, prepayment experience and the interest rate environment. Approximately $26.9 million of this adjustment related to Salomon's December 2000 exercise of the call provision for the Company's 1998-NC5 security. Net proceeds to New Century at the completion of the call, in January 2001, was approximately $5.8 million in excess of the amount of outstanding residual financing and customary deal expenses. The Company does not have interests in any other residual securities that have a call provision similar to 1998-NC5. After the effect of this transaction in January 2001, the carrying value of the residual interests was reduced to approximately $329.5 million and residual financing was reduced to approximately $146.8 million. If the Company's actual experience differs materially from the revised assumptions used to determine the value of the residual interests, future cash flows and earnings could be negatively affected.

RISKS RELATED TO LOWER CREDIT GRADE BORROWERS

    Loans made to lower credit grade borrowers, including credit-impaired borrowers entail a higher risk of delinquency and higher losses than loans made to borrowers with better credit. Virtually all of the Company's loans are made to borrowers who do not qualify for loans from conventional mortgage lenders. No assurance can be given that the Company's underwriting criteria or methods will afford adequate protection against the higher risks associated with loans made to lower credit grade borrowers. The Company continues to be subject to the risks of default and foreclosure following the sale of loans through securitization to the extent such losses reduce the residual interest distributions. Any such reduction in the Company's cash flows could have a material adverse effect on the Company's results of operations, financial condition and business prospects.

CHANGES IN INTEREST RATES

    The Company's profitability may be directly affected by changes in interest rates. First, such changes may affect the Company's ability to earn a spread between the interest received on its loans and its funding costs. Second, a substantial and sustained increase in interest rates could adversely affect borrower demand for the Company's products. Third, during periods of rising interest rates, the value and profitability of the Company's loans may also be negatively impacted from the date of origination or purchase until the date the Company sells or securitizes such loans. Fourth, the Company's adjustable rate mortgage loans have a life rate cap above which the interest rate on the loan may not rise. In the event of general interest rate increases, the rate of interest on these mortgage loans could be limited, while the rate payable on the senior certificates representing interests in a securitization trust into which such loans are sold may be uncapped, which would reduce the amount of cash the Company receives over the life of its residual interests, thereby requiring the Company to reduce the carrying value of such residual interests. Fifth, a significant decrease in interest rates could increase the rate at which loans are prepaid, which would also reduce the amount of cash the Company receives over the life of its residual interests. Either of the fourth or fifth events could require the Company to reduce the carrying value of its residual interests, which would have a material adverse effect on the Company's results of operations, financial condition and business prospects.

ECONOMIC SLOWDOWN OR RECESSION

    The risks associated with the Company's business are more acute during periods of economic slowdown or recession because these periods may be accompanied by decreased demand for consumer credit and declining real estate values. Declining real estate values reduce the ability of borrowers to use home equity to support borrowings by negatively affecting loan-to-value ratios of the home equity collateral. In addition, because the Company makes a substantial number of loans to credit-impaired borrowers, the actual rates of delinquencies, foreclosures and losses on such loans could be higher during economic slowdowns. Any sustained period of increased delinquencies, foreclosures or losses could

29

adversely affect the Company's ability to sell loans or the prices the Company receives for its loans, as well as the value of its residual interests in securitizations.

COMPETITION

    The Company faces intense competition in the business of originating, purchasing and selling mortgage loans. Many of the Company's competitors are substantially larger and have considerably greater financial, technical and marketing resources than the Company. In the future, the Company may also face competition from government-sponsored entities, such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, which may target potential customers in the Company's highest credit grades, who constitute a significant portion of the Company's customer base.

    Certain large finance companies and conforming mortgage originators have begun to originate non-conforming mortgage loans, and some of these large mortgage companies, thrifts and commercial banks have begun offering non-conforming loan products to customers similar to the borrowers targeted by the Company. Competitors with lower costs of capital have a competitive advantage over the Company. In addition, for a company with access to capital or warehouse lines of credit to fund loan originations, establishing a broker-sourced loan business requires a substantially smaller commitment of capital and human resources than a direct-sourced loan business. This relatively low barrier to entry permits new competitors to enter this market quickly and compete with the Company's wholesale lending business.

DEPENDENCE ON WHOLESALE BROKERS

    The Company depends primarily on independent mortgage brokers and, to a lesser extent, on correspondent lenders, for the origination and purchase of its wholesale mortgage loans, which constitute a significant portion of the Company's loan production. These independent mortgage brokers deal with multiple lenders for each prospective borrower and are not obligated by contract or otherwise to do business with the Company. The Company competes with these lenders for the independent brokers' business on pricing, service, loan fees, costs and other factors. The Company's future results of operations and financial condition may be vulnerable to changes in the volume and cost of its wholesale loans resulting from, among other things, competition from other lenders and purchasers of such loans.

RISKS ASSOCIATED WITH TRANSFER OF SERVICING

    The Company has sold its servicing rights relating to approximately $4.8 billion in securitized loans comprising 25 asset-backed securities to Ocwen Federal Bank FSB. Those loans continue to be serviced by the Company's existing servicing operations pending the scheduled August 1, 2001 transfer date. There is a risk the servicing unit's performance level will deteriorate in the months preceding the transfer because of higher attrition rates or lower motivation among the units employees due to the unit's impending closure. Poorer servicing performance could increase the Company's delinquency and loss rates, which could adversely affect the value of the Company's residual interests. Moreover, if the servicing platform's value deteriorates materially during the transition period, Ocwen could seek a purchase price adjustment that would reduce the Company's proceeds from the transaction. In addition, there is a risk of disruption relating to the actual transfer of servicing from the Company to Ocwen. If the transfer is not accomplished smoothly, it could result in an increase in delinquency and loss rates that could in turn harm residual values. Finally, there is a risk that Ocwen will not service the loans as effectively as the Company. Poor servicing could adversely effect the value of the Company's residual interests.

CONTINGENT RISKS

    In connection with its securitizations, the Company is required to repurchase or substitute loans in the event of a breach of a representation or warranty made by the Company. Likewise, in connection with

30

its whole loan sales, the Company enters into agreements which generally require the Company to repurchase or substitute loans in the event of a breach of a representation or warranty made by the Company to the loan purchaser, any misrepresentation during the mortgage loan origination process or, in some cases, upon any fraud or early default on such mortgage loans. The remedies available to a purchaser of mortgage loans from the Company are generally broader than those available to the Company against the sellers of such loans, and if a purchaser enforces its remedies against the Company, the Company may not be able to enforce whatever remedies the Company may have against such sellers. The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. They are also typically sold at a significant discount to the unpaid principal balance. Significant repurchase activity could negatively affect the Company's cash flow and results of operations.

RISKS RELATING TO NEW LEGISLATION

    Several states, as well as the federal government, are considering proposed legislation or regulations to curb predatory lending practices. As drafted, however, many of these laws and rules extend far beyond curbing predatory practices to restrict legitimate lending activities, including some of the Company's activities. For example, some of these laws and rules prohibit any form of prepayment charge. Passage of these laws and rules in their current forms could reduce the Company's loan origination volume, which would have a material adverse impact on the Company's results of operation, financial condition and business prospects.

ANTI-TAKEOVER PROVISIONS

    The Company's Certificate of Incorporation (the "Certificate of Incorporation") and its Bylaws (the "Bylaws") include provisions that could delay, defer or prevent a takeover attempt that may be in the best interest of stockholders. These provisions include the ability of the Board of Directors to issue up to 7,500,000 shares of preferred stock (the "Preferred Stock") without any further stockholder approval, a classified Board of Directors and requirements that (i) stockholders give advance notice with respect to certain proposals they may wish to present for a stockholder vote, (ii) stockholders act only at annual or special meetings and (iii) two-thirds of all directors approve a change in the number of directors of the Company. Issuance of Preferred Stock could also discourage bids for the common stock at a premium as well as create a depressive effect on the market price of the common stock. In addition, under certain conditions, Section 203 of the Delaware General Corporation Law (the "DGCL") would prohibit the Company from engaging in a "business combination" with an "interested stockholder" (in general, a stockholder owning 15% or more of the Company's outstanding voting stock) for a period of three years unless the business combination is approved in a prescribed manner. Finally, certain provisions in the Company's transaction with U.S. Bancorp in 1998, may discourage takeover attempts by third parties.

CONTROL BY CERTAIN STOCKHOLDERS

    At December 31, 2000, a small group of stockholders of the Company, comprising the management team and directors, U.S. Bancorp and Brookhaven Capital, beneficially own an aggregate of approximately 92% of the outstanding shares of common stock. Accordingly, such persons, if they were to act in concert, would have majority control of the Company, with the ability to approve certain fundamental corporate transactions (including mergers, consolidations and sale of assets) and to elect all members of the Board of Directors. See "Security Ownership of Certain Beneficial Owners and Management."

POSSIBLE VOLATILITY OF STOCK PRICE;
EFFECT OF FUTURE OFFERINGS ON MARKET PRICE OF COMMON STOCK

    The market price of the Company's common stock may experience fluctuations that are unrelated to the operating performance of the Company. In particular, the price of the common stock may be affected by general market price movements as well as developments specifically related to the consumer finance industry and the financial services sector such as, among other things, interest rate movements, quarterly variations or changes in financial estimates by securities analysts and a significant reduction in the price of the stock of another participant in the consumer finance industry. This volatility may make it difficult for the Company to access the capital markets through a secondary offering of common stock, regardless of the Company's financial performance.

31

ITEM 2. PROPERTIES

    The Company's executive, administrative offices and some of its lending offices are located in Irvine, California and consist of approximately 211,000 square feet. The three leases covering the executive, administrative and lending offices expire in June 2002, December 2002 and January 2005, respectively, and the combined monthly rent is $445,000.

    The Company leases space for its regional operating centers in Chicago, Illinois, Rancho Bernardo and San Ramon, California, Tampa, Florida and Englewood, Colorado. As of December 31, 2000, these facilities had an annual aggregate base rental of approximately $44,000. The Company also leases space for its sales offices, which range in size from 100 to 3,552 square feet with lease terms typically ranging from one to five years. As of December 31, 2000, annual base rents for the sales offices ranged from approximately $3,000 to $104,000. In general, the terms of these leases vary as to duration and rent escalation provisions, expire between April 2001 and January 2005 and provide for rent escalations dependent upon either increases in the lessors' operating expenses or fluctuations in the consumer price index in the relevant geographical area.

ITEM 3. LEGAL PROCEEDINGS

    In August 2000, the Company was informed by the Federal Trade Commission that it was conducting an inquiry to determine whether the Company had violated the Fair Credit Reporting Act, Federal Trade Commission Act or other statutes administered by the Commission. The Commission subsequently focused its inquiry on whether the pre-approved credit solicitations generated by the Company's retail units comply with applicable law. The Commission is reviewing data and information provided by the Company, which is cooperating with the inquiry.

    In October 2000, Hazel Jean Matthews, Ruth D. Morgan and Marie I. Summerall filed an amended class action suit against New Century Mortgage Corporation, Central Mortgage, Inc., Equibanc Mortgage Corporation, Century 21 Home Improvements, and Incredible Exteriors, Inc., on behalf of themselves and other Ohio consumers whose credit transaction was brokered by Equibanc and Central Mortgage. New Century was not named in the original complaint. The suit was filed in the Ohio state court and later removed by New Century Mortgage to the U.S. District Court for the Southern District of Ohio. The complaint alleges breaches of the Federal Fair Housing Act, Equal Credit Opportunity Act, Truth in Lending Act, gender discrimination, fraud, unconscionability, civil conspiracy, RICO, as well as other claims against the other defendants. Plaintiffs are seeking injunctive relief, compensatory and punitive damages, attorneys' fees and costs. The Company filed a motion to dismiss in December 2000. Plaintiffs obtained court authorization to amend their complaint. New Century intends to renew its motion to dismiss and continue to vigorously defend this action.

    The Company is also a party to various legal proceedings arising out of the ordinary course of its business. Management believes that any liability with respect to such legal actions, individually or in the aggregate, will not have a material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 2000.

32

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

    The Company's Common Stock trades on the Nasdaq National Market under the symbol "NCEN". The high and low bid prices of the Company's Common Stock during each quarter for the fiscal years 2000 and 1999 were as follows:

    As of March 23, 2000 the closing sales price of the Company's common stock, as reported on the Nasdaq National Market, was $10.31.

    The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to retain any earnings for use in its business and does not anticipate paying any cash dividends on its common stock in the foreseeable future. In addition, the Company is prohibited from paying dividends under certain of its credit facilities without the prior approval of the lenders.

    As of March 23, 2000 the number of holders of record of the Company's common stock was approximately 57, and as of March 23, 2000 there were approximately 1,031 beneficial owners of the Company's common stock.

RECENT SALES OF UNREGISTERED STOCK

    On March 8, 2000, the Company issued 1,639 shares of common stock to Kirk Redding and 1,093 shares of common stock to Paul Akers representing a portion of the earn-out payments for the acquisition of PWF Corporation. The sale and issuance of the shares were exempt from the registration requirements of the Securities Act by virtue of Section 4(2) of the Securities Act and Regulation D thereunder.

    On April 1, 2000, the Company issued 13,577 shares of common stock to David R. McGee and Melinda L. McGee, Trustees of the David R. McGee and Melinda L. McGee Living Trust dated May 1, 1998 representing $125,000 of the purchase price for the acquisition of Worth Funding Incorporated. The sale and issuance of the shares were exempt from the registration requirements of the Securities Act by virtue of Section 4(2) of the Securities Act and Regulation D thereunder.

    On December 18, 2000, the Company issued 28,704 shares of common stock to Kirk Redding and 19,136 shares of common stock to Paul Akers and an aggregate of 7,250 shares of Common Stock to 12 other employees of PWF Corporation. The sale and issuance of the shares were exempt from the registration requirements of the Securities Act by virtue of Section 4(2) of the Securities Act and Regulation D thereunder.

    On January 1, 2001, the Company issued 11,919 shares of common stock to David R. McGee and Melinda L. McGee, Trustees of the David R. McGee and Melinda L. McGee Living Trust dated May 1, 1998 representing $125,000 of the deferred purchase price for the acquisition of Worth Funding Incorporated.

33

The sale and issuance of the shares were exempt from the registration requirements of the Securities Act by virtue of Section 4(2) of the Securities Act and Regulation D thereunder.

ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)

    The following selected consolidated statements of operations and balance sheet data for the years ending December 31, 2000, 1999, 1998, 1997 and 1996 have been derived from the Company's financial statements audited by KPMG LLP, independent auditors, whose report with respect thereto appears elsewhere herein. Such selected financial data should be read in conjunction with those financial statements and the notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" also included elsewhere herein.

34

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and the accompanying Notes included elsewhere herein.

GENERAL

    New Century is a specialty finance company engaged in the business, through its subsidiaries, of originating, purchasing, selling and servicing sub-prime mortgage loans secured primarily by first mortgages on single family residences. The Company originates and purchases loans through its wholesale and retail channels. Wholesale originations and purchases are through independent mortgage brokers who provide loans through the Wholesale Division of the Company's New Century Mortgage Corporation subsidiary as well as its subsidiary, Worth Funding Inc. Retail originations are made through New Century Mortgage Corporation's network of branch offices and through its Central Retail Division. New Century's borrowers generally have considerable equity in the property securing the loan, but have impaired or limited credit profiles or higher debt-to-income ratios than traditional mortgage lenders allow. The Company's borrowers also include individuals who, due to self-employment or other circumstances, have difficulty verifying their income, as well as individuals who prefer the prompt and personalized service provided by the Company.

35

LOAN ORIGINATION AND PURCHASES

    As of December 31, 2000, the Company's Wholesale Division was operating through five regional operating centers located in Southern California, Northern California, Englewood, Colorado, Chicago, Illinois and Tampa, Florida and through 21 additional sales offices located in 17 states. During the year ended December 31, 2000, the Wholesale Division funded $3.0 billion in loans, or 73.3%, of the Company's total loan production, including $123.5 million, or 3.0%, originated through Worth Funding, which was acquired by the Company in March 2000. As of December 31, 2000, the Retail Branch Operations Division was operating through 19 retail sales offices in California, and 50 retail sales offices in 25 other states. During the year ended December 31, 2000, the Retail Branch Operations Division funded $797.5 million in loans, or 19.2%, of the Company's total loan production. The Central Retail Division originated $313.0 million, or 7.5% of the Company's total loan production. In December 2000, the Company's subsidiary, Primewest Funding, merged with New Century Mortgage Corporation and became a part of the Central Retail Division.

    The following table summarizes the Company's loan originations and purchases for the periods shown.

(1)

The weighted average initial loan-to-value ratio of a loan secured by a first mortgage is determined by dividing the amount of the loan by the appraised value of the mortgage property at origination. The weighted average initial loan-to-value ratio of a loan secured by a second mortgage is determined by taking the sum of the first and second mortgages and dividing by the appraised value of the mortgaged property at origination.

36

    The following table sets forth the loan production results, the number of office locations and the number of sales professionals at the end of each quarter by division:

LOAN SALES AND SECURITIZATIONS

    Historically, the Company's loan sale strategy included both securitizations and whole loan sales in order to advance the Company's goal of enhancing profits while managing cash flows. Loan sales through securitizations permit the Company to enhance operating profits and to benefit from future cash flows generated by the residual interests retained by the Company. Whole loan sale transactions enable the Company to generate current cash flow, protect against the potential volatility of the securitization market and reduce the risks inherent in retaining residual interests in securitizations. Due to market circumstances as well as cash flow considerations, the Company's strategy shifted toward greater emphasis on whole loan sales during 2000. The Company expects this strategy shift to continue in 2001.

    The following table sets forth loan sales and securitizations for the periods indicated: