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Sub-prime lender Accredited gets loan

It receives a $200-million infusion. Also, Wells says hundreds have been let go at its unit. Woes deepen at New Century.

March 21, 2007|Walter Hamilton and E. Scott Reckard | Times Staff Writers

The struggling sub-prime mortgage industry was hit with more layoffs Tuesday, but at least one lender received an assist that could help it keep the lights on.

Accredited Home Lenders Holding Co. of San Diego said it had received a $200-million loan from Farallon Capital Management, a San Francisco-based hedge fund.

The loan gives Accredited, the 15th-largest sub-prime lender in 2006, a financial cushion -- allowing it to pay creditors and to keep making loans.

"It's a lifeline," said Richard Eckert, an analyst at Roth Capital Partners. "It allows them to continue doing business."

Eckert, however, said the company still needed more money -- perhaps another $200 million. Accredited officials did not return a call for comment.

Sub-prime lenders specialize in loans to people with spotty credit or irregular income. Rising defaults and shrinking lending margins have forced dozens of these firms to close or put themselves on the auction block.

Those that remain in business have stopped offering their highest-risk loans, such as no-money-down mortgages or loans in which borrowers don't have to document their income.

Wells Fargo & Co. -- by at least one measure the biggest player in the sector -- said Tuesday that it eliminated at least 444 positions in its sub-prime operations last month after tightening its lending standards.

The job cuts "are the result of the loan volume going down," said Teri Schrettenbrunner, a spokeswoman for Wells Fargo Home Mortgage.

The 444 jobs were cut at Wells' offices in North Carolina, Arizona and Northern California -- where 71 positions in Concord were eliminated Feb. 19, she said.

Small numbers of jobs may have been trimmed elsewhere, Schrettenbrunner said, but she added that the San Francisco-based company didn't release information on minor changes in employment.

Fewer than 444 people became unemployed because Wells rehired many of the affected workers in different jobs, Schrettenbrunner said, but she could not provide any figures.

Wells Fargo helped originate $83 billion in sub-prime loans last year, the most of any lender, according to Inside B & C Lending, a trade publication. Schrettenbrunner said that number was misleading. On most of the loans, she said, Wells Fargo partnered with Wall Street investment banks that took over the loans and the risk of any losses.

Wells Fargo kept only the servicing rights -- the business of charging fees for billing and collecting on the mortgages -- on those co-originated loans, she said. When Inside B & C Lending subtracted the co-originations, she said, Wells Fargo dropped to the No. 10 slot among sub-prime lenders.

In other developments, New Century Financial Corp. of Irvine said California had joined other states in issuing a cease-and-desist order because of its financial troubles. The mandate bars New Century from making new loans in California and requires the company to transfer existing loan applications to other companies.

New Century also disclosed that mortgage-finance giant Fannie Mae had stopped buying its loans. New Century shares fell 48 cents, or 22%, to $1.69 in over-the-counter trading. The shares were delisted by the New York Stock Exchange last week.

Shares of Accredited, however, rose 20% after news of its loan from Farallon. Even after climbing $1.82 to $10.77, however, the stock is down 60% this year.

Accredited's medicine didn't come cheap: The five-year loan carries a steep 13% interest rate. Farallon also received warrants to buy 3.3 million shares at $10 apiece.

Farallon declined to comment. The firm, one of the nation's largest hedge funds, says on its website that it lends money to "companies experiencing financial distress or whose credit is poor but expected to improve."

The fund was founded in 1986 by Thomas Steyer, who previously worked in the risk-arbitrage arm of Goldman Sachs.

Farallon owned almost 2 million shares of Accredited at the end of December, according to Bloomberg News data, raising the prospect that Farallon is simply looking to protect its investment.

Eckert, however, noted that hedge funds and buyout firms are believed to be scouting the sub-prime world for firms -- and individual loans -- that can be had for bargain prices.

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