The U.S. mortgage unit of Macquarie Group Ltd., the Australian investment bank, has stopped taking loan applications, citing higher funding costs and a lack of liquidity.
Macquarie Mortgages USA has been selling all its loans through securitizations, rather than putting them on the parent company’s roughly $146 billion-asset balance sheet. And though the Jacksonville, Fla., unit caters mainly to prime borrowers, the capital markets have turned inhospitable even to the safest categories of mortgages lately. In addition, the parent company, based in Sydney, has also stopped writing mortgages in its home country for much the same reason.
In a memo to brokers Monday, the U.S. unit stressed that it was withdrawing “from the writing of new mortgages only” and that it will continue to service loans for its 3,500 mortgage customers.
“This decision was made due to the significant increase in the cost of funding new mortgages resulting from the deterioration in global credit markets,” the memo said. However, “the quality of Macquarie’s U.S. mortgage portfolio remains high with no subprime exposure and very low default rates.”
Alex Doughty, a Macquarie spokesman, said Tuesday that more than half of the company’s 80 U.S. employees will be laid off.
He called the move to cease new fundings in the United States “a prudent step” given the uncertainty in global credit markets. “We believe there is no near-term prospect of a material change to the global credit market with respect to funding mortgages,” he said.
Mr. Doughty emphasized that the lender’s strategy has been to securitize loans. “It’s not a balance sheet business,” he said.
The company’s U.S., Canadian, and Italian mortgage units accounted for 19% of Macquarie Group’s mortgage revenue last year but generated less than 1% of its total profits, Mr. Doughty said. Macquarie’s global mortgage portfolio totals $22 billion.
The company’s outlook is likely to have a more significant effect in Australia, where Macquarie provided wholesale funding to third parties, which now will have to raise funds from major banks, Mr. Doughty said.
The changes will not affect Macquarie Financial Ltd., the company’s Toronto mortgage lending unit.
Macquarie Mortgages USA continues to outsource much of the work involved in servicing to GMAC LLC’s subservicing unit, Mr. Doughty said. However, Macquarie employees handle all contact with customers.
Bill Westrom, a former account executive at Macquarie Mortgages USA, said the lender is “just falling in line with all the other lenders.”
“This is not based on the performance of their loans or a lack of business — it’s the capital markets shutting down,” said Mr. Westrom, now the chief executive officer at IFS Development Group LLC, a consulting firm he co-founded in Spring Hill, Fla.
The Macquarie unit’s flagship product is the Macquarie Asset Manager, a first-lien home equity line of credit, which it has marketed as a way to accelerate payoffs and save on interest payments. Borrowers are advised to use their entire paycheck to pay down the loan balance and then draw money from the line as they need it — a common practice in Australia.
Macquarie’s ceasing funding in the United States will reduce the availability of such lines, said Mr. Westrom, whose firm advises banks on how to offer a similar product.
Keith Gumbinger, a vice president at the Pompton Plains, N.J., research firm HSH Associates, said Macquarie’s main product likely became too risky because of falling housing prices.
“If home prices are devalued, they are in essence making borrowers unsecured loans” when the home equity line of credit is drawn, he said. “So the value of the home is decreasing, while the borrower’s indebtedness is holding steady, which increases the risk to the lender,” even though the line takes a first-lien position.
