Thursday, January 11, 2007

by Elizabeth Hester

NEW YORK , USA (Bloomberg): Popular Inc., owner of Puerto Rico's biggest bank, will close its sub-prime lending unit, a move that will cost the company $39 million in charges and about 627 people their jobs.

The company, which runs Banco Popular de Puerto Rico, plans to shut its wholesale non-prime mortgage origination business early in the current quarter along with the wholesale broker, retail and call-center units, said a federal filing on Tuesday.

"Certainly, our performance has not been up to our standards," said Chief Executive Officer Richard Carrión in the filing, adding that the bank tried to improve results during 2006. "Unfortunately those efforts proved to be insufficient."

Late payments on sub-prime loans in the US rose during the third quarter to 12.56 percent of the total, the most since the first quarter of 2003, the US Mortgage Bankers Association said. That's prompted an exodus from the business by banks including KeyCorp and National City Corp., which sold their sub-prime units. Others including Mortgage Lenders Network USA Inc., Ownit Mortgage Solutions Inc. and Sebring Capital Partners LP closed operations and cut staff as the loans soured.

Sub-prime mortgages are made to people with low incomes, a track record of missed payments or limited credit histories.

They're often among the first to default when the economy weakens, interest rates rise or home price drop.

Employees affected by the staff cuts will get 60 days notice and a severance package, the bank said. The US consumer finance and mortgage subsidiary employs about 2,449 people, the filing said, adding that Cameron William, president of the mortgage unit, would retire.

"Taking care of our people is one of our fundamental values, so this is not a happy day for us," Carrión said.

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