Accredited Home Lenders Holding said on Wednesday it had stopped taking mortgage applications and would eliminate 1,600 jobs, or 62 percent of its work force, to cope with turmoil in subprime lending.
The cutbacks were announced 11 days after Accredited filed suit to prevent Lone Star Funds from backing out of a pact to acquire the subprime lender. The Dallas-based private equity firm has accused Accredited of breaching the merger agreement.
Most of the job cuts will take place by Sept. 5. Following the restructuring, San Diego-based Accredited said it will employ 1,000 people, down from 2,600 as of June 30 and 4,200 at the end of 2006.
The company said it plans to honor existing loan commitments and resume lending through brokers when market conditions warrant.
"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 of home loans last year.
Accredited Chief Executive James Konrath said in a statement, "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.
"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 said it would close its GreenPoint Mortgage wholesale unit, causing 1,900 layoffs.
Accredited spokesman Rick Howe did not immediately return requests for comment. Ed Trissel, an outside spokesman for Lone Star, did not immediately return a call seeking comment.
Shares of Accredited fell 50 cents, or 7.5 percent, to $6.05 in morning trading on the Nasdaq. The shares began the year at $27.35.
Bankruptcy Warning
Accredited plans by Sept. 5 to close almost all of its retail lending business, which includes 60 branches and five central support operations, 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 Aug. 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 Dallas-based Lone Star for $15.10 per share, or about $400 million. It filed suit in Delaware Chancery Court to enforce the merger after Lone Star indicated it wanted to back out. Lone Star has said Accredited may be entitled to nothing more than a $12 million breakup fee.
"It will be very challenging for Accredited to survive on its own," George said. "A lot of the value in the shares is based on whether the lawsuit succeeds, either through a merger or cash settlement."