Contifinancial Corp. on Monday became the latest specialty lender to announce layoffs, losses, and a shift in business strategy.

In its quarterly earnings report, Conti said it would have to let go of 446 employees, or 12% of its work force. The New York company took $165.1 million in charges against earnings, mostly the result of losses in its commercial real estate business.

The announcement came as the fixed-income markets-which until recently had been the lifeblood of lenders like Conti-appear to be improving after months of zero liquidity.

Still, that companies like Conti, whose loans remain relatively sound, have run into trouble fuels the argument that the Federal Reserve should ease credit when its Open Market Committee meets today.

Conti said it would try to reduce its reliance on buying loans from correspondent lenders, and on selling the loans in the capital markets.

"Given the changes that have swept through our industry, we believe it is imperative to modify our business strategy," said James E. Moore, president and chief executive officer.

In its residential lending business, Conti intends to beef up its retail and broker channels and reduce correspondent loans to 30% of originations, from 60%. It will also try to sell more of its production through whole- loan sales, rather than repackaging the loans into bonds for sale to institutional investors.

The shift from correspondent production is intended to let Conti lend without spending so much cash, Mr. Moore said. "The cash drain will fall quite sharply as we originate fewer loans through that channel."

In its commercial mortgage business, the company has stopped lending through its conduit, Contimap. Conduits originate loans intending to securitize, aggregating them on their balance sheets until the pools are large enough.

Like many other conduit lenders, Conti hedged its commercial mortgage inventory by selling forward Treasuries, thinking that if rates fell the value of the mortgages would increase.

Unfortunately, the Russia crisis of late August prompted a flight to quality, causing Treasuries to rally and commercial mortgages to plummet in value. Conduits were hit with a double whammy: They could no longer securitize their loans without taking a loss, and their hedges backfired.

"What surprised the industry was the fact that triple-A securities would decline in price very rapidly without any specific concern about the underlying credit quality of the collateral," Mr. Moore said. "That's where everyone was caught short."

Continental Grain Co., which owns 77% of Conti stock, agreed to provide $85 million of monthly servicer advances for two securitized loan pools Conti services, allowing Contifinancial to use its own capital elsewhere.

The markets for bonds backed by home equity loans and commercial mortgages have recovered since. Some bond offerings are being sold, though at wider spreads over Treasuries than before late August.

Still, "there's not an overwhelming amount of liquidity in the markets. A Fed easing will definitely help," said Hugh I. Miller, chief executive officer and president of Delta Funding Corp. a Woodbury, N.Y., specialty finance company that has not taken a hit.

An easing is "something we'd very much like to see happen," Mr. Miller said.

Reilly Tierney, an analyst at Fox-Pitt, Kelton, said "the securitization-only paradigm is broken."

Mr. Tierney said he doubted the shakeout in consumer finance would influence the Fed's decision on rates today.

"I don't think there's going to be any type of credit crunch for consumers. For every Conti or United Companies or FirstPlus that ends up on its knees, there is a bank or consumer finance company ready to step in and take that volume."

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