Mortgage lenders close their doors and lay off employees by the hundreds as the industry's subprime woes continue.
A few years back, the mortgage industry was sprinting forward with the speed of a thoroughbred. But today things have changed, and many mortgage lenders are laboring under the pressure like weighted-down pack mules. Industry players and stakeholders are wondering how bad things can get before the pace picks up again.
Misery loves company
Signs of trouble in the mortgage industry started surfacing last year. Lenders reported increased default rates, and smaller industry players quietly began to disappear. Secondary market demand, which fuels the industry's main source of funding, weakened. Then, in a flurry of news announcements earlier this year, dozens of major and minor subprime lenders closed their doors or sought out bankruptcy protection.
Another burst of bad news for the industry hit the wires in late-August. Accredited Home Lenders, a subprime lender based in San Diego, notified its brokers that it would no longer accept loan submissions for approval. Accredited expects to do away with about 1600 jobs. And they weren't alone. HSBC Group announced the closing of a mortgage finance office in Carmel, Ind., eliminating 600 jobs. Delta Financial of Woodbury, N.Y. intends to cut its workforce by about 20 percent, affecting 300 employees. In Irvine, Calif., two lenders announced lay-offs totaling 720: ImpactMortgage Holdings will eliminate 120 jobs, and Option One plans to cut 600.
The mighty are falling
Countrywide, the nation's largest mortgage lender, recently borrowed $11.5 billion dollars to fund ongoing operations, since cash formerly available from secondary market investors has dried up. The company has eliminated 500 jobs, and plans to pull back significantly on subprime and Alt-A lending. Analysts expect Countrywide to post a loss for the third quarter of this year, mainly a result of rising default rates. The company's stock price has fallen more than 50 percent since the beginning of 2007.
Capital One Financial Corporation has also been in the news. The company announced the immediate closure of its GreenPoint Mortgage business, citing conditions in the secondary market. GreenPoint was an originator of Alt-A loans that relied on secondary market demand for funding.
Lehman Brothers, one of the largest investment banks in the U.S., announced the planned closing of its BNC Mortgage unit and layoff of 1200 employees. Like GreenPoint, BNC was in the business of originating non-conforming mortgages and then selling nearly all of them on the secondary market. A statement on the BNC website blames a substantial reduction in resources and capacity due to "market conditions."
Over the past 12 months, more than 100 mortgage lenders have significantly scaled back operations or shut down their subprime activities permanently. It's an indication that the only certainty in the mortgage industry is that things are decidedly uncertain. The announcements by Lehman Brothers and Countrywide, in particular, indicate that even the industry's pedigreed competitors aren't immune to the fallout.