Accredited Home Lenders Holding Co said on Wednesday it will shut most of its mortgage business to help survive turmoil in subprime lending, and eliminate 1,600 jobs, or 62 percent of its work force.
The mortgage lender stopped taking U.S. mortgage applications, and plans to close much of its retail and wholesale operations, including 60 branches.
It announced the cuts 11 days after suing Lone Star Funds to prevent the Dallas-based private equity firm from backing out of an agreement to buy the company for $400 million.
Following the restructuring, Accredited said it will employ 1,000 people, down from 2,600 on June 30 and 4,200 at the end of 2006.
It said it plans to honor existing loan commitments, and will resume lending through brokers when markets allow.
“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.”
Subprime lenders make loans to people with weaker credit histories. Analysts have said Accredited’s underwriting standards were more prudent than those of many rivals. The company said it made $15.8 billion worth of home loans last year.
“These difficult decisions were made out of necessity in light of the continued and widely publicized turbulence in the mortgage and financial markets, but with a heavy heart,” said Accredited Chief Executive James Konrath in a statement.
“The streamlining of our operations and significant curtailment of new loan originations are required to preserve liquidity during the current and anticipated market conditions, and are also designed to position Accredited to compete in the mortgage market when it functions more rationally,” he added.
Dozens of mortgage lenders have quit the industry this year, and several have gone bankrupt as delinquencies rose, and tighter capital markets deprived them of operating cash.
This week, Capital One Financial Corp said it would close its GreenPoint Mortgage wholesale unit and lay off 1,900 people.
Accredited spokesman Rick Howe did not return requests for further comment. Lone Star, through spokesman Ed Trissel, declined to comment.
San Diego-based Accredited plans by September 5 to close almost all of its retail lending business, including 60 branches and five support centers, resulting in 480 layoffs. It also plans to shut five of 10 wholesale divisions as of that date, eliminating 490 jobs.
In addition, it will cut 180 of 400 jobs at its headquarters, and substantially reduce its title insurance and settlement operations. Canadian operations are not affected by the restructuring, Accredited said.
Accredited announced the restructuring a day after it said it would sell $1 billion of home loans to an unnamed investor to help limit its exposure to margin calls.
The company said on August 2 that it could not guarantee it would remain a “going concern,” and that bankruptcy was possible unless market conditions improved.
Accredited agreed on June 4 to be acquired by Lone Star for $15.10 per share, or about $400 million. After Lone Star indicated it wanted to back out, Accredited sued in Delaware Chancery Court to enforce the merger.
Lone Star has said Accredited breached the merger agreement, and may be entitled to nothing more than a $12 million merger breakup fee. It wasn’t immediately clear whether the parties might be willing to resolve their differences.
“It will be very challenging for Accredited to survive on its own,” said George of Keefe, Bruyette. “A lot of the value in the shares is based on whether the lawsuit succeeds, either through a merger or cash settlement.”
