Online lender E-LOAN is in the process of laying off 513 employees, or two-thirds of the company’s workforce, as parent company Banco Popular North America reports mounting losses related to subprime mortgage loans.
The layoffs are part of a move to concentrate on loans eligible for repurchase to Fannie Mae and Freddie Mac, according to a U.S. Securities and Exchange Commission filing by BPNA’s parent company, Popular Inc. The company reported that the layoffs are expected by year-end and will reduce expenses at E-LOAN by $79 million next year.
Puerto Rico-based Popular said third-quarter net income fell 56 percent from a year ago to $36 million, largely because of a $44.7 million net loss in U.S. operations including E-LOAN. The bank said U.S. losses for the first nine months of 2007 totaled $107.7 million, compared with a $20.3 million profit for the same period a year ago.
The layoffs were approved Nov. 5 by Popular’s board of directors as part of a restructuring plan for E-LOAN. Employees at the company’s Pleasanton, Calif., headquarters were informed of the decision Thursday by President Mark Lefanowicz, one employee who was laid off told Inman News.
Reading from a prepared statement, Lefanowicz told workers that the company was closing its auto and home equity lending divisions after losing $28 million in the third quarter, the employee said.
“He got a little teary-eyed — it was pretty emotional,” the employee said. “Some people broke down and cried.”
In a statement, E-LOAN said that in the months ahead, the company “will experience a resizing that will help to position it for continued long-term growth in this current mortgage environment.” The company “will retain all of its pieces of business, and is on track to expand its product offerings over the next year,” the statement said.
On Sept. 4, E-LOAN announced a reduced interest rate on jumbo loans for borrowers with FICO scores of 740 or above.
E-LOAN became a subsidiary of BPNA in January. Before that, the online lender was under the umbrella of another Popular Inc. company, Popular Financial Holdings.
According to Popular’s latest SEC filing, Popular Financial exited the wholesale nonprime mortgage loan origination business during the first quarter of 2007, shutting down its wholesale broker, retail and call center divisions.
But 69 percent of the mortgage loans Popular Financial holds in its portfolio — some $3.9 billion in loans — have FICO scores of 660 or below. Of the 24 percent of loans in Popular Financial’s portfolio with adjustable interest rates, $251 million are scheduled to adjust for the first time between Oct. 1 and Dec. 31. Another $478 million in loans will adjust next year.
As of Sept. 30, the ratio of nonperforming mortgage loans in Popular Financial’s portfolio was 7.94 percent. Popular Inc. said it increased provisions for loan losses companywide by $84.6 million during the third quarter.
Popular blamed a 63 percent decline in non-interest income on lower gain on sale of loans and lower loan origination volume at E-LOAN, due to the softening housing market and lack of liquidity in secondary markets for loans.
In the first nine months of the year, Popular Financial securitized $461 million in loans, compared with $1 billion during the same period a year ago.
The company said it will place greater reliance on deposits, rather than unsecured short-term borrowings to fund loans. An “unprecedented instability and disruption” in the credit markets has made “even routine asset sale and funding activities more challenging for financial institutions,” the company said.
BPNA operates more than 135 branches in six states, with E-LOAN providing online consumer direct lending and generating deposits for BPNA through its online platform. Popular also services $18.1 billion in residential mortgages for other lenders.
