More layoffs in sub-prime loan sector
The shakeout in the sub-prime lending industry continued Monday, with more people losing their jobs and a prominent lender losing its name on a baseball stadium.
Fremont General Corp. of Santa Monica said it had told “significant numbers” of its 2,400 home-loan employees to expect pink slips in two months. Company officials declined to say how many employees would be dismissed.
Fremont is the latest lender to announce layoffs in the sub-prime market, which targets people with dented credit. Rising defaults and foreclosures have ravaged the industry, and some economists fear the sector’s woes could extend to the housing market and the broader economy.
The Orange-based parent of Ameriquest Mortgage Co. and Argent Mortgage Co. announced large but unspecified layoffs last week. On Monday, Ameriquest said that its name was coming off the Texas Rangers’ baseball stadium in Arlington, Texas.
The company had signed a 30-year, $75-million deal in 2004 to have the stadium named Ameriquest Field. No financial details were released Monday, but by returning the naming rights, Ameriquest presumably will no longer have to make payments on that agreement, and the Texas Rangers can stamp their brand on the stadium for now and resell the rights to another company.
The Rangers proposed ending Ameriquest’s naming agreement and corporate affiliation last year, team President Jeff Cogen said in a news release.
The initial deal had been part of Ameriquest’s ambitious branding strategy at the height of the sub-prime lending boom, which led the lender’s parent, ACC Capital Holdings Inc., to spend more than $800 million on marketing and advertising in 2004 and 2005.
“We’re evaluating all our market needs” in light of the current environment, said Ameriquest spokesman Chris Orlando.
Industry observers expect more casualties to be announced in coming weeks as companies scale back, close or put themselves up for sale.
Irvine’s New Century Financial Corp. is one of those expected to shed large numbers of employees. It had about 7,200 employees as the year began, but laid off 200 in January and 300 more this month. A spokeswoman said she could provide no immediate comment on what was ahead for the workforce.
“You almost can relate this to the aerospace industry, when they had those massive layoffs” after the end of the Cold War, said Jack Williams, president of the California Mortgage Brokers Assn.
Williams, a Brea mortgage broker, said most of the companies that remained in business were scaling back their operations. That reflects not only the shrinking volume of loans but also the fact that the riskiest sub-prime loans were no longer being offered.
“When you take the products away, you no longer need the underwriter for them or the supervisor for that line,” he said.
Fremont General’s sub-prime business stopped making new loans early this month and sent home all the operation’s employees except customer-service representatives. The affected employees will remain on paid leave until May 18, when the layoffs may take effect.
The business is part of Fremont Investment & Loan, Fremont General’s Brea-based banking subsidiary, and was the seventh-largest funder of sub-prime loans last year. As part of a crackdown on lax lending practices, The Federal Deposit Insurance Corp. has accused the bank of taking too many risks, including making loans likely to end in foreclosure for customers unable to obtain lower-cost prime mortgages.
The mortgage operation is up for sale, but Fremont has told investors it can’t assure them that it will find a buyer. The bank still accepts deposits at its 22 branches and makes commercial real estate loans, a line of business it said involved 166 employees.
Many less-specialized lenders, including Countrywide Financial Corp., Washington Mutual Inc. and Wells Fargo & Co., have made layoffs and consolidations in their sub-prime businesses recently, aside from job reductions that cut more broadly across all their operations.
Seattle-based Washington Mutual reduced its workforce by about 4,700, or 27%, last year, due to the end of the housing boom and the company’s push for cost-efficiency, spokesman Tim McGarry said. In addition, Washington Mutual announced last month that it would consolidate the operations of its sub-prime business, Long Beach Mortgage, from eight regional offices to four, eliminating 180 jobs.
Calabasas-based Countrywide, the nation’s No. 1 mortgage lender, had 56,000 employees in September when it said it would reduce its general and administrative staff by 5% to 10%. Last week, the firm announced that it would cut 108 jobs at its wholesale sub-prime unit, which makes loans through brokers.
Countrywide spokesman Rick Simon said Monday, however, that the company continued to hire top sales and customer-service people from other lenders, and was expanding its non-mortgage businesses. Of the 108 sub-prime employees laid off last week, about 50 are being rehired in other functions, he said, and employment is almost back at 56,000.
Observers said the overall industry direction, however, was down, with especially sharp losses in the sub-prime sector, where companies such as Fremont and New Century joined a wave of shutdowns that began when Agoura Hills-based Ownit Mortgage Solutions Inc. closed in December, laid off nearly all its 800 employees and filed for bankruptcy protection.
“There may be a Countrywide that will pick up 50 people here or 50 people there,” Williams said. “But when you have an Ownit or a Fremont closing down you’re talking about a lot of people who are going to wind up leaving the business for another line of work.”
Low interest rates and soaring home prices drove the sub-prime business to record levels earlier this decade. But as housing began to slow and rates rose two years ago, profits shrank and lenders began to offer money on increasingly easy terms to borrowers with poor credit scores, heavy debt loads and little home equity.
When the default rate shot up late last year on such loans, many lenders tightened their lending practices and regulators took notice, but it was too late to stop a flood of losses, causing Wall Street to back away from the business.
In other developments:
* Shares of San Diego-based Accredited Home Lenders Holding Co. plunged $1.95 to $8.95 after the firm said Nasdaq might delist its shares because the company had not yet filed its 2006 annual report. Accredited said it would appeal.
* Linda Thomsen, director of enforcement at the Securities and Exchange Commission, told reporters that the agency was conducting a broad investigation of “all the actors and their roles” in the sub-prime industry. She didn’t mention any names.
* U.S. Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), invited executives from five sub-prime mortgage companies to testify at a hearing Thursday, including officials from New Century, Countrywide and WMC Mortgage of Burbank, a General Electric Co. unit.
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Times staff writers Ronald D. White and Tom Petruno contributed to this report.
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For recent articles on mortgage lending problems, go to latimes.com/subprime.
