The crisis in America’s subprime mortgage market claimed its largest victim yet as New Century Financial today filed for Chapter 11 bankruptcy protection and said it would fire 3,200 workers, more than half of its workforce.

Second only to HSBC in the US subprime mortgage market, New Century is the biggest player in the sector to be overcome by soaring default levels.

Its shares fell 10 per cent today having already lost 97 per cent of value in recent months.

The California-based group extended about $60 billion in loans last year. Its largest creditors include Wall Street giants Goldman Sachs, Credit Suisse, Morgan Stanley, Deutsche Bank, Bank of America, Lehman Brothers, UBS, Citigroup and Countrywide Financial.

Riding America’s housing boom, sub-prime lenders specialised in providing loans to customers with poor credit ratings.

Hit by surging default rates, at least 30 lender have sought buyers or halted operations in the past year, according to Bloomberg. HSBC was last month forced to issue a profit warning over its subprime business in the US.

The Centre for Responsible Lending said last month that one in five mortgages taken out by high-risk creditors in the US in 2005 and 2006 will end in repossession, “exceeding the worst foreclosure experience in the modern mortgage market, which occurred during the ‘oil patch’ disaster of the 1980s”.

Papers filed today in the US Bankruptcy Court in Wilmington, Delaware, said that New Century has assets of $36.3 million and debts of $102.5 million.

New Century added that it has agreed to sell its loan servicing business to Carrington Capital Management for about $139 million, subject to the approval of the bankruptcy court.

New Century has also agreed to sell certain loans and residual interest in some trusts to Greenwich Capital for $50 million.

Brad A Morrice, president and chief executive, said: "Given the sudden and significant challenges facing our industry and New Century specifically, bankruptcy is the best means available to allow the company's assets and operations to be sold through an orderly process."

Late payments on sub-prime mortgages hit a four-year high in the fourth quarter of last year, according to the US Mortgage Bankers Association.

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