NEW YORK Lehman Brothers Holdings Inc LEH.N and National City Corp NCC.N said on Thursday they are laying off 2,150 workers, the latest in a flurry of job losses in the mortgage industry as the housing market slumps.
Lehman, the Wall Street investment bank, said it will let go 850 employees, or 3 percent of its work force, as it trims its U.S. and British loan operations and shuts down its South Korean mortgage business.
The cuts will result in a $20 million after-tax charge. Lehman announced them two weeks after deciding to close its Irvine, California-based BNC Mortgage LLC subprime unit, which lent to people with poor credit, resulting in 1,200 layoffs.
National City, the ninth-largest U.S. bank, said it is laying off 1,300 workers and scaling back its mortgage business, resulting in a $200 million pre-tax charge in the third quarter.
The Cleveland-based bank will make fewer loans it cannot sell to mortgage companies Fannie Mae FNM.N and Freddie Mac FRE.N. It also suspended the issuance of home equity loans through brokers. The bank had announced plans in August to merge its home equity unit into its main mortgage unit.
Thursday's cuts were announced a day after Countrywide Financial Corp CFC.N, the largest U.S. mortgage lender, announced 900 layoffs, on top of 500 announced on August 20.
"Originators have to adjust their cost structures for the lower mortgage volumes that people are expecting," said Blake Howells, an analyst at Beckers Capital Management in Portland, Oregon, which invests $2.6 billion.
National City had already significantly reduced its mortgage exposure last year, when it sold its First Franklin Financial Corp subprime unit to Merrill Lynch & Co Inc MER.N for $1.3 billion.
Dozens of U.S. mortgage lenders have curtailed lending this year as defaults soared, home price appreciation ended and investors stopped buying many loans.
Much of the weakness has focused on subprime lenders, but investors have grown increasingly worried about risks from "Alt-A" home loans, which fall between prime and subprime in quality" and "jumbo" prime mortgages once thought safe.
"Buyer psychology has been negatively impacted by a steady stream of news related to falling housing prices, foreclosure rates and mortgage availability," said Ara Hovnanian, chief executive of home builder Hovnanian Enterprises Inc (HOV.N).
"We expect the current challenging environment to persist through most of 2008," Hovnanian said.
Red Bank, New Jersey Hovnanian posted a $80.5 million loss for the quarter ended July 31 late on Thursday.
The Mortgage Bankers Association, a trade group, said on Thursday that the pace of foreclosures rose in the April-to- June period to a third straight quarterly record.
Lehman, one of Wall Street's largest underwriters and traders of mortgage debt, was one of the first investment banks to make home loans itself and package them into bonds.
Lehman shares closed down 52 cents at $53.83 and are down 31.1 percent this year. National City shares closed down 66 cents at $26.67 and have fallen 27.1 percent this year.