Wall Street firms, which had raced to buy mortgage originators to feed their lucrative business of packaging the loans as securities, marked a retreat from that tattered field yesterday when Lehman Brothers Holdings Inc. said it will close its unit that lent to riskier borrowers.
The closure will add to the thousands of layoffs related to the subprime pullback.
Lehman will take a $25 million charge and a $27 million write down on the closure of its second-biggest mortgage originator. The firm will lay off 1,200 people, representing 4.2% of Lehman's total work force. In the last 10 days, more than 12,000 workers have lost their jobs at mortgage originators that include big names such as Countrywide Financial Corp. and Accredited Home Lenders, which laid off 1,600 people yesterday.
"Lehman is probably making a statement that the subprime market isn't going to make quick recovery. This is not a one-month event," said Brad Hintz, an analyst at Sanford C. Bernstein & Co. and a former chief financial officer at Lehman. "You're not going to pull out of something if you anticipate the market is going to come back quickly."
From the WSJ:
Subprime-mortgage lender Accredited Home Lenders Holding Co. will stop taking new U.S. loan applications and will cut more than half its staff to cope with credit-market turmoil.
The San Diego company, long viewed as one of the stronger independent lenders for its relatively prudent underwriting policies, said "substantially all" of its retail lending business, which comprises 60 retail branches and five retail support locations, "will be effectively closed" as of Sept. 5, affecting 480 positions. Another 490 jobs will be lost in wholesale operations, which will close five of 10 divisions and cut staff at the other five. About 340 jobs will remain.
The loss of financial service jobs over the last month has been very large. Simply put, it's going to hurt going forward.