Mortgage crisis widens at Accredited, HSBC, Lehman

Jonathan Stempel

New York, Aug 23 (bdnews24.com/Reuters) -- Fallout from the U.S. mortgage and credit crisis spread on Wednesday as Accredited Home Lenders Holding Co, HSBC Holdings Plc and Lehman Brothers Holdings Inc announced job cuts and concern mounted about the longer-term impact on the economy.

Mortgage lenders announced plans to cut more than 4,000 jobs, bringing the total of announced housing-related job losses since Thursday to more than 12,600. Many of the cuts related to subprime lending, which involves loans to people with weaker credit.

"There is no functioning subprime market," said Bose George, a Keefe, Bruyette & Woods Inc. analyst. "This is the only way to weather the storm. Cut the work force, stop making loans they can't sell, and hope things get better."

Despite the problems, U.S. stocks advanced on Wednesday as takeover activity resurfaced, and investors gained confidence that the credit markets could stabilize, especially if the U.S. Federal Reserve cuts interest rates.

Accredited, a San Diego-based subprime specialist, will cut 1,600 of its 2,600 total jobs and shut most of its retail and wholesale operations by September 5. It also stopped taking loan applications.

Lehman, one of Wall Street's biggest mortgage bond underwriters, will close its Irvine, California-based subprime unit BNC Mortgage LLC, get rid of 1,200 jobs, and take $52 million in charges. It plans to continue making mortgages through its Aurora Loan Services LLC unit.

London-based HSBC, Europe's largest bank, will close a Carmel, Indiana, office and cut 600 jobs.

Many lenders face a credit shortage because investors will not buy debt they consider less than pristine, including asset-backed commercial paper backed by such things as mortgages.

Liquidity problems have spread beyond subprime lenders and raised fears of a global credit shortage as defaults mount, investors stop buying loans, and bankers refuse to extend credit to lenders.

And late in the day, mortgage real estate investment trust Impac Mortgage Holdings Inc said it had laid off about 350 employees as part of a wide bid to cut costs.

Another lender, Woodbury, New York's Delta Financial Inc, fired 300 employees, while Houston's Amstar Financial Holdings Inc will close its mortgage unit and turn over its 118-branch network to The Money Store of Florham Park, New Jersey.

Tax preparer H&R Block Inc said its Block Financial subprime mortgage unit tapped bank credit lines twice in the past week after skittish debt markets cut off access to short-term financing.

"The credit markets have become increasingly constrained and unstable," Chief Financial Officer William Trubeck said in a statement. The company plans to sell its Option One subprime unit to private equity firm Cerberus Capital Management.

ECONOMIC HARM

The four largest U.S. banks -- Citigroup Inc, Bank of America Corp, JPMorgan Chase & Co and Wachovia Corp -- said Wednesday they borrowed $2 billion from the Fed to show support for the financial system.

Much of the market concern stems from home loans made earlier this decade when credit was easy to get.

Loan losses are up at most large lenders, and analysts expect them to increase as homeowners struggle to refinance hundreds of billions of dollars of mortgages as rates reset higher.

July foreclosures were up 93 percent from a year earlier, research firm RealtyTrac said on Tuesday.

Sheila Bair, who chairs the Federal Deposit Insurance Corp, said the agency was being "vigilant" as delinquencies piled up, adding that the "tremendous golden age of banking" for U.S. financial institutions was over for now.

And luxury home builder Toll Brothers Inc said Wednesday that quarterly profit fell 85 percent, and that tighter credit will likely reduce the number of potential home buyers.

Dozens of U.S. mortgage lenders have quit the industry this year. At least a dozen have gone bankrupt, including two on Tuesday -- First Magnus Financial Corp of Tucson, Arizona, and Quality Home Loans of Agoura Hills, California.

Further increases in foreclosures may weigh on the overall economy, according to Sen. Charles Schumer, a New York Democrat who chairs the Congressional Joint Economic Committee.

"The ultimate harm will extend well beyond the families who will lose their homes," Schumer said in letters to regulators and lenders. "The effects on households, neighborhoods and the broader economy are likely to be severe."

BAD DEBTS MOUNT

The job cuts at Accredited will leave the company with one-fourth of the employees it had at the beginning of the year.

"These difficult decisions were made out of necessity in light of the continued and widely publicized turbulence in the mortgage and financial markets," Accredited Chief Executive James Konrath said.

Accredited made $15.8 billion of loans in 2006, and said it plans to honor existing loan commitments. It was unclear how the job cuts might affect its lawsuit to force private equity firm Lone Star Funds to complete its announced $400 million purchase of the company,

The cuts at HSBC Finance were announced three weeks after it said U.S. subprime exposure helped push overall bad debts from January to June up 63 percent from a year earlier to $6.35 billion.

As other lenders struggled with credit, IndyMac Bancorp Inc , a Pasadena, California thrift and mortgage specialist, said it will resume making prime, one-family "jumbo" home loans that are too large to be eligible for purchase and guarantee by Fannie Mae and Freddie Mac.

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