First American Cuts Jobs, NovaStar Survival at Risk
Fallout from the U.S. housing slump on mortgage and real estate companies deepened Tuesday, as title insurer First Americanand subprime lender NovaStar Financialannounced job cuts and NovaStar's auditor expressed doubt that the company will survive.
First American, the largest U.S. provider of insurance to protect homeowners against property claims, said it will cut 1,300 jobs, on top of 600 cuts announced in the second quarter, citing "rapidly changing economic conditions."
The Santa Ana, California-based company said it may move some jobs to other countries. It ended 2006 with 39,670 employees. LandAmerica Financial Group Inc, the third-largest title insurer, last Tuesday announced 1,100 job cuts.
NovaStar will cut 275 of 400 retail lending jobs, has canceled a rights offering intended to raise $101.2 million, and will explore "strategic alternatives" for its servicing business, including a partnership with another company. It stopped making home loans through brokers on Aug. 17. It expects to employ 600 people overall after the cuts.
The Kansas City, Missouri-based company also said auditor Deloitte & Touche wouldn't be associated with the rights offering unless NovaStar amended its 2006 financial statements, and included a statement "about the uncertainty of NovaStar's ability to continue as a going concern." Subprime lenders make home loans to people with poor credit histories.
"We are pulling back to focus on NovaStar's core strengths and preserve liquidity," NovaStar Chief Executive Scott Hartman said in a statement. "The secondary market has deteriorated substantially, so we are modifying our business model and further reducing costs for this difficult environment."
Thornburg Mortgage, a specialist in "jumbo" mortgages that don't qualify for purchase and guarantee by Fannie Maeand Freddie Mac, said it sold bonds backed by $1.44 billion of home loans. The Santa Fe, New Mexico-based company plans to use proceeds to pay down credit lines and speed up lending, after last month halting loan applications and selling $20.5 billion of securities to help pay off debt.
Need to Adjust
Companies associated with the housing market are struggling with increasing defaults, falling home prices, rising borrowing costs and tighter lending standards. Sales of previously owned homes fell in July for a fifth straight month, and the supply of unsold homes hit the highest level since October 1991, according to the National Association of Realtors.
"Housing prices remain way out of line with people's incomes, and were boosted by a lot of specialized mortgage products that aren't available anymore," said David Olson, co-founder and president of Wholesale Access, a Columbia, Maryland-based firm that tracks the mortgage industry. "In a slowing economy, the mortgage and real estate markets will have to adjust."
Investor fear of risk is also weighing on the industry. Citing insufficient investor demand, Freddie Mac on Tuesday said this quarter it will not issue one of its standard mortgage securities, a Reference Real Estate Mortgage Investment Conduit, for the first time since it began the program in April 2005.
Several dozen mortgage companies have stopped lending or found buyers this year.
Tax preparer H&R Blockis trying to save a sale of part of its Option One Mortgage subprime business to private equity firm Cerberus Capital Management.
Another subprime lender, Accredited Home Lenders Holding, on Friday said it will continue a lawsuit to enforce Lone Star's agreement in June to pay $15.10 per share for the company. It rejected Lone Star's lowered $8.50 per share bid.
In late morning trading, First American shares fell 1 cent to $41.82, NovaStar fell $1.56, or 18.4 percent, to $6.93, Thornburg rose 39 cents, or 3.3 percent, to $12.17 and Freddie Mac rose 64 cents to $62.25. Accredited rose 63 cents, or 7.0 percent, to $9.68, after surging 43.4 percent on Friday.