Negative subprime mortgage news continues to cause disorder in the market, despite the historical end-of-August lull.
In recent headlines, Lehman Brothers announced the close of BNC Mortgage, its subprime mortgage originator. The closure affects approximately 1,200 employees in 23 U.S. locations. Lehman said it will continue to originate mortgages in the U.S. through Aurora Loan Services. However, the bank will take after-tax charges, including severance, real estate and technology costs of roughly $25 million, and a write-down of approximately $27 million on the closed business.
Aside from Lehman, there's more bad news that came out on the subprime front his week. HSBC Holdings eliminated 600 jobs in the U.S. when it closed its Indiana mortgage office and Accredited Home Lenders announced the close of almost all of its retail lending business consisting of 60 retail branch locations and five centralized retail support locations, cutting approximately 480 jobs. Five of Accredited's ten wholesale divisions will also be closed, cutting its workforce by an additional 490 positions, including reductions in the workforce at its five remaining wholesale locations.
At the same time, Accredited has stopped accepting U.S. loan applications and will reduce its settlement and insurance services division, Inzura Settlement Services. Accredited's staff in its San Diego headquarters will be reduced to approximately 220 people from approximately 400, rounding out the company's bad news.
Moody's Investors Service added to mortgage market concern by cutting the ratings on 120 securities originated in the second half of 2005 and backed by subprime, first-lien mortgage loans. The loans are valued at approximately $1.5 billion, representing 0.7% of the dollar volume and 4.1% of the securities rated by Moody's in the second-half of 2005 that were backed by subprime, first-lien loans, the rating agency said. Loans rated 'Baa' or lower, made up the majority of the downgrades. No rating actions were taken on securities rated 'Aaa' or 'Aa'.
The rating agency also downgraded the servicer rating of Fremont Investment & Loan to 'SQ4' from 'SQ4+' and the servicer quality rating of Specialized Loan Servicing to 'SQ4+' from 'SQ3' as a primary servicer of second liens and to 'SQ4+' from 'SQ3' as a primary servicer of subprime residential mortgage loans. Accredited was cut to 'SQ4+' from 'SQ3+' as a primary servicer of subprime loans and NovaStar Mortgage also dropped to 'SQ4+' from 'SQ3+' as a primary servicer of subprime residential mortgage loans. All of the companies are on review for possible downgrade.
On the upside, Countrywide Financial received a $2 billion equity investment from Bank of America. The bank invested the $2 billion in the form of a non-voting convertible preferred security yielding 7.25% annually, Countrywide said. The security can be converted into common stock of $18 dollars per share. However, Moody's kept Countrywide on review for a possible downgrade on its 'Baa3' senior debt ratings.
"This investment by Bank of America in Countrywide should be a positive step in helping to alleviate pressure on Countrywide's liquidity, and in restoring confidence in the mortgage firm," Philip Kibel, an analyst at Moody's, said in a release.
"However, Countrywide's overall liquidity and access to funding remain strained due to continued dislocations in the mortgage markets, and these matters, among others, need to be addressed before Moody's would resolve its the ratings review." The company recently announced that it was cutting jobs at its prime and subprime mortgage originator, Full Spectrum Lending. The amount of layoffs was not disclosed