Lehman Brothers is closing its subprime mortgage business because of the tumult in the home lending industry, the bank said Wednesday.
The Wall Street brokerage said it is shuttering its BNC Mortgage subsidiary, which issues home loans to people who cannot document their income or have shaky credit histories.
Lehman will lay off 1,200 workers at 23 offices.
Closing this business will cost $25 million in severance pay and real estate and technology costs. Lehman Brothers will also record a $27 million accounting charge for writing down goodwill, or the value of the Irvine, Calif.-based business that Lehman carried on its books above the worth of the physical assets.
Lehman Brothers will continue to issue home loans through its Aurora Loan Services unit.
Mortgage lenders around the nation, especially subprime lenders, have been closing down in the past month as deteriorating credit quality has drained the cash available to the industry.
Shares of Lehman rose more than 2 percent on the New York Stock Exchange after reports of the closure.