NEW YORK -- The U.S. mortgage and credit crisis deepened on Wednesday, as Accredited Home Lenders Holding Co, HSBC Holdings Plc and Lehman Brothers Holdings Inc announced a total of 3,400 job cuts, as concern mounted about the longer-term impact on the economy.
Accredited, a subprime mortgage lender, said it stopped taking loan applications and would cut 1,600 of its 2,600 jobs as it shuts most of its retail and wholesale operations by Sept. 5.
"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."
Accredited is based in San Diego.
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Lehman, based in New York, said it would close its BNC Mortgage LLC subprime unit, affecting 1,200 workers in 23 U.S. offices. It plans to continue making mortgages through its Aurora Loan Services LLC unit.
London-based HSBC, Europe's largest bank, said it would close a Carmel, Indiana office and cut 600 jobs.
Many lenders face a credit shortage because investors are not buying debt they consider less-than-pristine. This includes asset-backed commercial paper, which matures within 270 days and is backed by such things as mortgages.
Liquidity problems have spread beyond subprime lenders, which make loans to people with poor credit, raising fears of a global credit shortage.
Another lender, Woodbury, New York's Delta Financial Inc , fired 300 of its roughly 1,500 employees, while Houston's Amstar Financial Holdings Inc said it will close its mortgage unit and turn over its 118-branch network to The Money Store of Florham Park, New Jersey.
Separately, tax preparer H&R Block Inc said its Block Financial unit drew down $200 million from a credit line on Aug. 16, and repaid it when it borrowed $850 million four days later. The Kansas City, Missouri-based company said it was having too much difficulty selling commercial paper.
"The credit markets have become increasingly constrained and unstable," Chief Financial Officer William Trubeck said in a statement.
H&R Block, which plans to sell its Option One subprime unit to private equity firm Cerberus Capital Management, has investment-grade credit ratings.
ECONOMIC HARM
The four largest banks — Citigroup Inc, Bank of America Corp, JPMorgan Chase & Co and Wachovia Corp — said on Wednesday they borrowed $2 billion from the Federal Reserve to show support for the financial system.
Much of the market concern stems from home loans made earlier this decade when credit was easy to get. Loan losses are up at most large lenders, and analysts expect further increases as homeowners struggle to refinance hundreds of billions of dollars of mortgages as rates reset higher.
July foreclosures were up 93 percent from a year earlier, research firm RealtyTrac said on Tuesday.
Luxury homebuilder Toll Brothers Inc said on Wednesday quarterly profit fell 85 percent, and that tighter credit would likely reduce the number of potential home buyers.
Further increases in foreclosures may weigh on the overall economy, according to Sen. Charles Schumer, a New York Democrat who chairs the Congressional Joint Economic Committee.
"The ultimate harm will extend well beyond the families who will lose their homes," Schumer said in letters to regulators and lenders. "The effects on households, neighborhoods and the broader economy are likely to be severe."
Dozens of U.S. mortgage lenders have quit the industry this year. At least a dozen have gone bankrupt, including two on Tuesday: First Magnus Financial Corp. of Tucson, Arizona, and Quality Home Loans of Agoura Hills, California.
BAD DEBTS MOUNT
The job cuts at Accredited will leave the company with one-fourth of the employees with whom it began the year.
"These difficult decisions were made out of necessity in light of the continued and widely publicized turbulence in the mortgage and financial markets," Accredited Chief Executive James Konrath said.
Accredited made $15.8 billion of loans in 2006 and said it plans to honor existing loan commitments. It was unclear how the cuts might affect Accredited's lawsuit seeking to force private equity firm Lone Star Funds to complete its announced $400 million purchase of the company,
The cuts at HSBC Finance were announced three weeks after Europe's largest bank said U.S. subprime exposure helped push overall bad debts from January to June up 63 percent from a year earlier to $6.35 billion.
As other lenders struggled with credit, IndyMac Bancorp Inc , a Pasadena, California thrift and mortgage specialist, said it was resuming making prime, one-family "jumbo" home loans that are too large to be eligible for purchase and guarantee by Fannie Mae and Freddie Mac.
IndyMac shares rose as much as 7.8 percent on Wednesday.
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