updated 3/20/2007 3:22:50 PM ET 2007-03-20T19:22:50

Fannie Mae will no longer allow New Century Financial Corp. to sell mortgage loans to the U.S. government-sponsored company, alleging the troubled lender has breached the terms of its contracts, New Century said Tuesday.

Fannie Mae, formally known as the Federal National Mortgage Association, notified New Century last week that it had allegedly violated the contract, according to documents filed with the Securities and Exchange Commission.

As a result, New Century and its subsidiaries can no longer sell mortgage loans directly to Fannie Mae or act as the primary servicer of any home loans for the company, according to the filing.

Fannie Mae finances one of every five home loans in the United States.

The move by Fannie Mae is the latest blow against Irvine-based New Century, which rode the housing boom to became the second-largest U.S. sub-prime mortgage lender by volume but now teeters on the brink of bankruptcy.

The company has stopped making new loans due to a lack of funds and is the subject of SEC and Justice Department investigations of its accounting practices and trading of its stock.

New Century also disclosed Tuesday that it had received a cease-and-desist order from California regarding the acceptance of new mortgage applications. In addition, some of its subsidiaries entered into a consent agreement with regulators in Florida and Washington, the company said.

The states’ moves are intended to keep New Century from accepting new mortgage applications on grounds that it has violated state laws, including failing to fund mortgage loans after closing.

New Century previously received such orders or entered into consent agreements with several other states, including Connecticut, Maryland, Tennessee, Massachusetts, New Jersey and New York.

New York’s banking department notified the company last week that it had suspended the mortgage banking license of New Century subsidiary Home123 for 30 days, pending an investigation.

New Century said it was reviewing the actions by New York and California to determine whether to file an appeal.

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