Mortgage Lenders Network Stops Loans, Sets Layoffs

Mortgage Lenders Network USA, a large U.S. subprime lender, said it has stopped funding loans and accepting applications for loans, citing deteriorating conditions in the mortgage market, and has temporarily laid off about 80% of its 1,800 employees.

Privately held Mortgage Lenders also said it is in "strategic negotiations" with several Wall Street firms regarding its loan operations.

Roughly four-fifths, or about 1,440, of the Middletown, Connecticut-based firm's employees are on "temporary furlough," spokesman James Pedrick said in an interview. Mortgage Lenders said it has five regional lending offices and employs about 950 people in its home state.

The retrenchment is the latest sign of stress among subprime lenders, which make higher-cost loans to people with weaker credit histories. It comes less than a week after similar-sized rival Ownit Mortgage Solutions filed for Chapter 11 bankruptcy protection.

Mortgage Lenders disclosed the changes on its Web site, in phone recordings at several offices, and in a statement.

Rising interest rates and home prices have led to growing competition for a shrinking pool of borrowers, and defaults are rising as the economy slows and rates reset higher.

Meanwhile, some lenders have been pinched by being forced to buy back loans they sold because of rising delinquencies, and as "warehouse" lenders pull credit lines, analysts said.

Unlike most subprime rivals, Mortgage Lenders increased its lending throughout 2006. It made $3.31 billion of subprime loans in the third quarter, ranking 15th nationwide, according to data from National Mortgage News. The firm, however, said wholesale market conditions have "deteriorated dramatically" in the last two months.

Chief Executive Mitchell Heffernan said wholesale broker originations will stop until credit quality and margins return to "acceptable levels." The firm said it plans to maintain its $17.8 billion servicing portfolio.

Heffernan had said on Dec. 8 that the firm viewed 2007 as a year of growth, including plans to build new headquarters in Wallingford, Connecticut.

Industry Struggles

Mortgage Lenders' third-quarter loan volume tripled from a year earlier though industrywide lending fell 9%. Among larger subprime lenders, only Wells Fargo and Citigroup boosted loan volumes.

David Olson, president of Wholesale Access, which tracks the mortgage industry, said Mortgage Lenders' retrenchment was unsurprising in light of subprime lenders' struggles. "Profits are way down, and margins are razor-thin or even negative," he said. Pedrick said Mortgage Lenders' warehouse lines of credit "have not been pulled and not been shut down."

Last Thursday, 16th-ranked Ownit, based in Agoura Hills, California, listed in its bankruptcy filing more than $170 million of debt, including $93 million owed to Merrill Lynch. Sebring Capital Partners, a Texas-based subprime lender, ceased operations on Dec. 1, according to its Web site.

Several Wall Street firms have made mortgage acquisitions in the last year, including Merrill Lynch and Morgan Stanley last month.