Lehman Layoffs
Lehman Brothers plans to lay off 400 employees at its BNC Mortgage LLC and merge the Irvine, Calif., subprime lending unit with its alternative-A one, Aurora Loan Services LLC, to form a single mortgage business.
Tom Wind, Lehman's head of residential lending for the Americas, said Tuesday that BNC Mortgage will reduce its work force by 24% over the next 60 to 90 days, to 1,300, and will close 27 branches nationwide over the next 18 months.
Lehman's mortgage business will be left with five regional operating centers.
"The consolidation of BNC and Aurora is about leveraging technology and offering broader products to our clients," Mr. Wind said. Both units have been adding products, he said, but using a single technology platform will allow Lehman to add even more products.
"We're definitely seeing demand for a broad range of products, and together with convergence and the opportunity to leverage technology, if you put that together, we think we're in a much better position to grow the business," Mr. Wind said. "Because of the shrinking market, originators are looking for a broader product set."
Lehman said it will continue to use both the Aurora and BNC Mortgage brands for the time being.
The firm founded Aurora, which offers some prime products, in 1997 and bought BNC Mortgage six years later. Mr. Wind said that if Lehman were to start over in the mortgage business, it would not have separate units for different types of lending.
Steven Skolnik, the chief executive of BNC Mortgage, will run wholesale lending for the combined mortgage business. He will report to Mr. Wind, who will continue to report to Theodore Janulis, Lehman's global head of mortgage capital.
"We've seen some companies close down and others trade, and some capacity has come out of the market," said Mr. Wind, who was a co-chief executive at JPMorgan Chase & Co.'s Chase Home Finance LLC before
After the reorganization, Lehman's correspondent lending will be remain headquartered in Denver. Direct lending will be based in St. Louis, and loan administration will be split between Denver and Scottsbluff, Neb.
Fine Print
Many borrowers fail to understand key terms in mortgage cost disclosures, but a prototype form produces much better results, according to a Federal Trade Commission
Ninety-five percent of respondents could not correctly identify the amount of a prepayment penalty in term sheets designed to reflect current practices, while only 42% failed to correctly identify the same information in the prototype. Similarly, 51% of respondents got the loan amount wrong using current forms, while only 13% got it wrong in the prototype. Twenty percent got the annual percentage rate wrong in the current forms, 5% in the prototype.
When designing the prototype forms, the FTC took into account in-depth interviews it conducted from September 2004 to February 2005 with 36 borrowers. For the study released Wednesday, questionnaires were given to 819 recent borrowers in the fourth quarter of 2005.
The study found that the prototype forms improved understanding more for loans with complex features, like interest-only payments and optional credit insurance, than for relatively simple loans. However, the FTC said it did not assess comprehension of several complex features, like adjustable rates, hybrid structures, and minimum-payment options, which "are likely to create even greater difficulties."
The study also cautioned that consumers may face more difficulties in real-world assessment of loan terms, because of factors like time pressure and "deceptive tactics aimed at obscuring loan costs."
Quotable …
"The key question is, why can't you refinance into a 30-year fixed? If you have been a borrower" who's "been making payments at the starter rate, why can't you just put them into a fixed rate at that rate?"
— Sheila Bair, chairman of the Federal Deposit Insurance Corp., on
