Accredited Home Lenders is closing down its retail lending business and laying off about 1,150 workers companywide in an attempt to keep the company’s doors open.
The San Diego-based subprime lender said it will close 60 retail branch locations and five support locations by Sept. 5, laying off 480 employees, and five of the company’s 10 wholesale divisions, eliminating 490 positions.
About 180 employees at the company’s San Diego headquarters will also be laid off, leaving Accredited Home Lenders with a total work force of 1,000, down from 2,600 at the end of June.
Accredited said its Canadian operations and its servicing platform for its $8.4 billion loan portfolio are not affected.
“Even though our servicing ratings have been downgraded over liquidity concerns in recent months, we intend to maintain the quality of our servicing operations and expect to continue providing the highest level of loan servicing for our bond investors,” James Konrath, Accredited’s chairman and chief executive officer, said in a statement.
Konrath said Accredited’s delinquency and loss numbers have historically been among the best in the industry, but investors who agreed to acquire the company in June say the company no longer meets the conditions set forth in the merger agreement.
Accredited Home Lenders sued Dallas-based Lone Star Fund on Aug. 11 in an attempt to force the firm to complete the planned acquisition.
In its answer to the lawsuit, Lone Star said Accredited has “little or no ability” to sell whole loan pools or to securitize its mortgage loans.
“Accredited is now, or will be within weeks,” in default on $1.4 billion in credit facilities, and creditors could accelerate the repayment of amounts outstanding, Lone Star said.
By the end of July, Accredited’s management was projecting a $230 million loss for the third quarter, up from a previous May 28 estimate of $64 million.
Accredited’s retail lending division “has recently proved to be an immense disadvantage to Accredited,” Lone Star said, generating more than $100 million in annual costs “with little prospect of generating offsetting revenues of anywhere near that magnitude.”
Lone Star maintains that it can’t be forced to follow through with the merger because Accredited’s only recourse is a reverse break-up fee of $12 million.
Accredited said today that its move to downsize — along with a deal to trade $1 billion of the company’s loan inventory with the right to repurchase them later — “will enable the company to maintain its downsized operations until market conditions improve” and it can resume originating loans.
Accredited said it expects to maintain three existing warehouse credit facilities with a total capacity of $1.6 billion for U.S. loan originations.
