Mortgage lenders get a lifeline, troubles linger

NEW YORK (Reuters) - Concerns over the housing market eased on Friday as two large providers of high-risk home loans struck deals to remain solvent, but stories of lending gone bad kept cropping up, leaving investors nervous.

Fremont General Corp., which is exiting the business of offering mortgages to people with weak credit, said Credit Suisse boosted its credit line to $1 billion.

Accredited Home Lenders Holding Co. announced it will sell $2.7 billion in loans at a substantial discount to buy it time while it looks for more financing.

The depressed share values of both firms rebounded sharply on the news. Fremont closed up $1.50, or 20.3 percent, at $8.90 a share on the New York Stock Exchange, while Accredited ended the day up $1.47, or 15.6 percent, at $10.90 per share on the Nasdaq market.

Financial markets were initially calmed by the news. U.S. stocks eventually ended the day lower, but for a change the subprime mortgage market's woes were not the culprit. A drop in oil prices dragged down energy shares and inflation data hurt hopes for a cut in interest rates any time soon.

March has been a rocky month for stocks, with the Dow Jones industrial average losing as much as 5 percent of its value.

But the bad news was not over for subprime lenders. ACC Capital, the parent of subprime lender Ameriquest Mortgage Co., has shuttered four of its call centers nationwide as part of job cuts in response to a "very challenging" market in loans to less creditworthy individuals, the company said.

ACC, which last month struck a deal in which Citigroup Inc. agreed to extend it additional working capital and obtained an option to buy its origination and servicing units, also said it is closing one of three loan processing centers.

ACC did not disclose how many people it was laying off. Its Argent wholesale mortgage lender, which is closing its White Plains, New York-based processing center, employs more than 1,000, according to its Web site.

With fears that turbulence in the subprime mortgage sector could lead to a credit crunch with a broader economic impact, politicians in Washington were sounding the alarm bells and calling for greater scrutiny and oversight.

Christopher Dodd, the Connecticut Democrat who chairs the U.S. Senate Banking Committee, said late on Thursday the panel will hold a hearing to look into the crisis, following similar calls for action from Senator and presidential hopeful Hillary Clinton, Democrat of New York.

Already, there were signs that consumers worried by falling housing prices were cutting back.

"Consumer spending is weakening again," said Jim O'Sullivan, senior economist at UBS. "Given that backdrop, economic growth should remain soft."

BENEATH THE NUMBERS

Underneath statistical evidence of the housing market's fall from grace, stories of individual distress continued to make headlines, putting a personal face on the story.

One tale from a community worker in San Diego suggests the hardships of variable rate home loans are affecting more than just those who have spotty borrowing records.

Andy Sobel had good credit, a decent job and modest savings, but he needed to stretch to buy a home in the white-hot San Diego housing market in 2004.

Three years later, Sobel has lost his home and his savings, and he faces a big tax bill as a consequence of a failed subprime mortgage held by Countrywide Financial Corp. , which he said he should never have been made.

"You never think that this could happen to you. You feel like an idiot," said Sobel, 48, who has a doctorate in education. "You fall down and they stab you."

A couple in Massachusetts, Thomas Hilchey and Robin Crevier, are taking legal action against their lender, Ameriquest, accusing it of deceit and saying its salesman failed to provide documents and disclosures on the loan required by state and federal law.

Such stories are likely to remain commonplace for some time to come, say analysts. Still, there is disagreement as to just how widely beyond the subprime sector these problems will extend. Economists see eye to eye on one thing though: the health of the U.S. economy hinges on an orderly resolution of the housing debacle.

(Additional reporting by Mark Porter, Joe Giannone, Gina Keating, Jason Szep)

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