Co-founder of once top O.C. subprime lender dies

January 9th, 2009, 11:40 am · 104 Comments · posted by Mathew Padilla

(Update II: Quote from Kerry Vandell added, more background on Gotschall.)

Edward Gotschall, co-founder of a former market leader in loans to people with spotty credit and a man who pledged millions of dollars to Mission Hospital in Mission Viejo and other causes, died Thursday of natural causes, according to Coto de Caza neighbor Paul Scheper and a family friend. He was 53.

Gotschall and three others founded New Century Financial in 1995. He managed the company’s books and worked with Wall Street investment bankers, helping build the Irvine-based lender into one the largest subprime lenders in the nation, with nearly $60 billion in loans in a single year.

“Ed was a life-giver, full of energy and passion,” said Scheper, vice president of lender Trust One Mortgage in Irvine. “He always lit up the room with his smile and his kind heart. He was very caring and fun. Heck, we just took a walk together two weeks ago and then saw each other at the Mission Hospital Gala, where he anonymously donated millions to the Mission Trauma Center. He was so caring and charitable.”

Bill Kaszton, a friend of the Gotschalls, said Gotschall died quietly while watching a football game last night.

“He had a remarkable love for sports, especially football, especially his Ohio Buckeyes,” Kaszton said. Gotschall attended Ohio State University as an undergraduate but later switched to Arizona State University, getting a bachelor’s degree in business administration.

New Century prospered during the housing boom, but ran out of cash after its home loans began defaulting in large numbers. It filed for bankruptcy liquidation in 2007 and was sold in pieces.

The company previously disclosed it is under federal investigation for sales of securities and accounting errors, but it has never said if any former executives are being investigated.

Kerry Vandell, professor of finance and director of UCI’s Center for Real Estate, said while subprime lenders have received much criticism they helped expand credit and homeownership to a wider pool of consumers.

Subprime lenders played a role in creating the credit crisis, but they were playing by the rules and in the environment set up by others, Vandell said. If one wants to look for true instigators of the credit boom and bust, start with former Fed Chairman Alan Greenspan, who cut interest rates and left them low for too long, Vandell said.

Vandell expects a rebound in subprime to some degree, after President-Elect Barack Obama and Congress improve oversight of home lending and investment banking.

“There is no intrinsic reason why we can’t move down the credit quality queue and market these mortgages, as long as credit risk is properly priced,” Vandell said.

Gotschall was the son of a coal miner and grew up in a small mining town in Ohio. In addition to raising money for and donating to Mission Hospital, he supported the Boy Scouts of Irvine and San Juan Capistrano High School.

Funeral arrangements are pending. Gotschall was married to his wife Susan for more than 25 years and raised three children.

And here’s highlights from New Century’s final days…