Wednesday, August 22, 2007

Lehman shuts BNC Mortgage unit, cuts 1,200 jobs

SAN FRANCISCO (MarketWatch) -- Lehman Brothers said Wednesday that it's shutting its subprime-mortgage unit BNC Mortgage LLC and firing 1,200 people, becoming the latest company to stop offering home loans to less-creditworthy borrowers. BNC was a top-20 subprime mortgage lender in 2006, originating more than $14 billion worth of home loans, according to industry publication Inside B&C Lending.

Lehman said it will keep offering mortgages through Aurora Loan Services LLC, another unit that focuses on so-called Alt-A home loans. Alt-A mortgages are offered to more-creditworthy borrowers, but they often require less documentation.
The closure of BNC will affect roughly 1,200 employees in 23 locations in the U.S., Lehman

The job cuts are the latest to hit the mortgage industry. Home loan companies have eliminated more than 25,000 positions in August alone.

Wednesday's move will cost Lehman more than $50 million, it said. Charges, including severance, real estate and technology costs, will total roughly $25 million after taxes, Lehman said. Another $27 million in costs would stem from the after-tax write-off of goodwill, the company added.

"Market conditions have necessitated a substantial reduction in ... resources and capacity in the subprime space," Lehman said in a statement.

Lehman shares rose 1.7% to close at $58.54 on Wednesday. The stock is down roughly 24% so far this year.

After mortgage lenders originate loans, they often package them up as mortgage-backed securities and sell them to institutional investors such as hedge funds, insurers, banks and pension funds.

During the recent housing boom, the securitization of subprime mortgages and other home loans was a lucrative business for investments banks. It became so attractive that some firms acquired subprime mortgage lenders so they could originate loans in-house to package up and sell. bought Saxon Capital for more than $700 million in December.

However, rising delinquencies on subprime mortgages have triggered a credit crunch in the mortgage business. More than 50 lenders have already gone bankrupt and investors in the secondary mortgage market have stopped buying securities backed by subprime loans.
That's undermined one of the main reasons why these investment banks acquired subprime mortgage originators.

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