Housing Market Problems Lead to Job Cuts

On the heels of a report that the economy lost jobs in August for the first time in four years, the nation's largest home-mortgage lender said it plans to lay off as many as 12,000 workers. Countrywide Financial is struggling with the housing market's subprime mortgage problems.

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SCOTT SIMON, host:

This is WEEKEND EDITION from NPR News. I'm Scott Simon.

Coming up, Seminoles in Florida look to expand the gambling frontier there.

But first, this nation's largest home mortgage lender, Countrywide Financial, late yesterday said it plans to layoff between 10 and 12,000 workers. That's a fifth of its total workforce. The news follows a dismal job's report released by the Labor Department that sent stocks tumbling. At the heart of the trouble here is the housing market's subprime mortgage debacle.

NPR's Chris Arnold reports.

CHRIS ARNORLD: In announcing the layoffs, Countrywide CEO Angelo Mozilo sent a letter to employees. In it, he said the current housing cycle is, quote, "the most severe in the contemporary history of our industry."

The cuts that Countrywide come on top of some 49,000 layoffs in the subprime part of the mortgage business this year, that's a big number and it's snowballing.

John Challenger tracks job losses at his consulting firm, Challenger, Gray & Christmas.

Mr. JOHN CHALLENGER (CEO, Challenger, Gray & Christmas, Inc.): This situation is like the airline's industry back after 9/11 that laid off many people, almost a hundred thousand very quickly. It's also like the dot-com collapse, in fact, probably in longer term more like that situation.

ARNOLD: In this case, economists say the layoffs and turmoil are the hangover from an unprecedented lending binge. Along with the historic housing boom came a breakdown in standards. Lenders often never checked people's W2s or other income documents. And the terms of adjustable rate loans were often extreme. Many of these unorthodox loans are now adjusting up sharply to 10 or 11 percents or higher.

Mr. CHALLENGER: Things got way out of hand. In retrospect, that's so easy to see that they - loans shouldn't have been made, we shouldn't have seen this run-up, but now we're paying the price of that.

ARNOLD: With home prices falling in many places, a lot of borrowers haven't been able to refinance out of their adjustable rate loans. And record numbers are going into foreclosure. That's roiled the credit markets and it's still unclear just how widespread the problems are.

Mr. CHALLENGER: As the credit crunch broke out in early August, all of a sudden, this crazy mortgage arms and no-doc loans began to unravel. And as that happened, it led these companies to lose their access to the money, the capital they needed to finance those mortgages.

ARNOLD: Some working in the industry have been surprised by how quickly the bottom fell out.

Ms. AMY WALTZ(ph) (American Home Mortgage, Bethesda, Maryland): I was pretty openmouthed, stammering, flabbergasted.

ARNOLD: Amy Waltz work for a lender called American Home Mortgage in Bethesda, Maryland. She lost her job suddenly in early August when the company collapsed amidst the squeeze in the credit markets and filed for bankruptcy.

Waltz describes what it was like working inside the industry during the subprime lending craze when lenders were loaning people the full value of the house with no money down.

Ms. WALTZ: You know, they were making loans at 100 percent where you didn't have to verify income or assets. You know, this was easy money. You know, if you're breathing, we can make you a loan. I mean, heck, you could have been a bartender and brokered loans(ph).

ARNOLD: Waltz says there were some people in the business who needed to get weeded out, but she also says there were a lot of people who were trying to make good loans.

Waltz says she's since found another job at a nearby bank. But jobs are getting harder to find. If the U.S. economy lost 4,000 jobs in August to the first monthly decline in four years, economists expect to see a lot more layoffs across the many industries that are getting squeezed by the housing downturn.

Chris Arnold, NPR News.

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