HSBC Finance Corp. said it will lay off 750 workers as it closes Decision One Mortgage, the company’s subprime wholesale lending channel, and concentrate on making loans through the company’s retail branches.
The Prospect Heights, Ill.-based lender said most of the affected Decision One workers are located in Fort Mill, S.C.; Phoenix, Ariz.; and Charlotte, N.C.
Decision One accounted for “a small part” of parent company HSBC Holdings’ U.S. business, the company said in a press release. HSBC Finance will continue to provide servicing and support as it winds down Decision One’s $349 million in warehoused loans.
“In recent months, unprecedented developments in the mortgage industry have resulted in a significant reduction in secondary market demand for nonprime loans,” the company said in a separate Securities and Exchange Commission filing. “Management has concluded that recovery of a secondary market for nonprime loans products is uncertain and at a minimum, cannot be expected to stabilize in the immediate term. As a result, a final determination was made today that our Decision One business will cease operations.”
HSBC Finance had been purchasing subprime and nonconforming mortgages from a network of third-party correspondent lenders. In March, HSBC announced it would stop buying loans through the correspondent channel. Decision One, which sold loans originated by mortgage brokers to secondary market investors including HSBC Finance, continued originating loans for sale to HSBC affiliates.
Closing Decision One and HSBC Finance’s correspondent channel will require the company to record a noncash after-tax goodwill impairment of $880 million in the second half of 2007, and $65 million in after-tax charges including employment benefits and facility closure costs.
Decision One saw loan sales volumes drop to $3.9 billion in the first half of 2007, compared with $5.5 billion during the same period in 2006, HSBC Finance said in its last quarterly report to investors.
Losses on real estate secured receivables held for sale by Decision One totaled $91 million in the first half of the year, compared with gains of $63 million in the first half of 2006.
A recent study of underwriting practices at 163 of the largest U.S. lenders by SMR Research Corp. concluded that only two of the top 10 companies — HSBC and Countrywide Financial Corp. — had above-average risk scores.
In 2005 and 2006, HSBC Finance acquired nearly $8 billion in loans from two subprime lenders — Champion Mortgage and Metris Companies Inc. — and retains billions in stated-income, interest-only and adjustable-rate mortgages (ARMs) on its books.
As of June 30, HSBC Finance reported its outstanding balance of interest-only loans was $6.2 billion, or 4 percent of receivables. HSBC’s consumer lending and mortgage services businesses had $22 billion in ARM loans on the books. The outstanding balance of stated-income loans in the real estate-secured portfolio was $9.4 billion.
HSBC warned investors that $9.8 billion in ARM loans on the company’s books would experience their first interest-rate resets in the second half of 2007 and throughout 2008.
