Sun, Aug 19, 2007 - Page 11 News List

NovaStar reducing staff by 37%

IN THE RED The Kansas City-based mortgage lender had earlier reported a second-quarter loss of US$54.5 million as loan production plummeted 73 percent

AP , KANSAS CITY, MISSOURI AND TUCSON, ARIZONA

US mortgage lender NovaStar Financial Inc said on Friday it was cutting 500 jobs, or 37 percent of its work force, as it stops selling home loans through brokers.

The firm said it would begin the cutbacks immediately and complete them in the fourth quarter.

Most of the cuts would come as Kansas City-based NovaStar closes its wholesale operation centers in California and Ohio. The head of its wholesale NovaStar Mortgage Inc subsidiary, David Pazgan, was stepping down.

Pre-tax charges for the layoffs would range from US$17 million to US$21 million, the company said.

Last week, the company reported a second-quarter loss of US$54.5 million as loan production fell 73 percent to US$773.7 million.

Wholesale loans are mortgages issued through a broker, as opposed to directly to a home buyer. NovaStar said it is still lending directly and has honored all commitments to fund loans that were already approved.

The decision comes a week after NovaStar temporarily suspended selling wholesale loans in a move the company said was needed to re-evaluate prices and guidelines for brokered loans amid "disruptions" in the market for mortgage debt.

NovaStar and other subprime mortgage lenders, which provide money to home buyers with spotty credit, have struggled recently as their customers have increasingly defaulted on their loans because of lower home prices and rising interest rates.

That has lowered demand for the loans among investors in the debt market, forcing some companies to buy back defaulted loans.

On Friday, First Magnus Financial Corp, a national mortgage lender that is suspending operations, said it had laid off 99 percent of its nearly 6,000 employees nationwide and closed all of its more than 300 offices.

According to a notice filed with the state on Friday, the Tucson-based company that originated home loans and then sold bundled loans into the secondary loan market expects to retain only about 60 of its employees.

First Magnus officials said a bankruptcy filing was possible.

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