WHETHER FEDERAL RESERVE CHAIRMAN Ben Bernanke is right that “the problems in the subprime [mortgage] market seem likely to be contained” from impacting the overall economy, is irrelevant to the thousands of lenders who joined unemployment lines in recent months, as banks and lending companies cut back in the face of pressure to rein in lending practices.
Among the more than two dozen sub-prime lenders who have shut their doors or significantly scaled back their operations in recent months is New Century Financial. In early April the Irvine, Calif.–based lender announced it was filing Chapter 11 bankruptcy protection and that it would lay off 3,200 workers (54 percent of its workforce) to better position the company for a sale.
New Century joins Wells Fargo & Co., which announced it cut 70 jobs in its sub-prime mortgage-servicing office in February. Others to make staff reductions are Fremont General Corp., based in Santa Monica, Calif., which announced significant numbers of layoffs of its 2,400 home-loan employees, and Orange, Calif.–based ACC Capital Holdings, parent company of Ameriquest Mortgage Co. Argent Mortgage Co. also announced a large reduction of its staff in its subprime businesses, according to the Los Angeles Times.
Executive heads are rolling as well. HSBC Holdings announced in late February that its head of North American business and CEO, Bobby Mehta, was stepping down and that Sandy Derickson, CEO of HSBC Bank USA and vice chairman of HSBC Finance, was also leaving. The departures came in the wake of an announcement from the company that it had to increase its reserves for bad loans to $10.56 billion, roughly 20 percent more than expected. HSBC took on many of the bad loans in 2003 when it paid more than $14 billion for Household International, then the country's largest subprime lender, according to published reports.