Subprime problems hit WaMu - Itasca office to close; 110 layoffs
By Becky Yerak
Copyright © 2007, Chicago Tribune
Published June 30, 2007
The Chicago job market continues to be haunted by problems in the nation's subprime mortgage industry, even as federal regulators fashion guidelines they hope will improve conditions in the sector.
Washington Mutual Inc. has disclosed that it is closing a subprime mortgage office at One Pierce Place in Itasca, leaving more than 100 employees out of work, according to a filing this week with the Illinois Department of Commerce and Economic Opportunity.
"As a result of the changing subprime market, we made the decision to close the facility," a WaMu spokesman confirmed Friday.
The state filing said 140 workers would be affected, but WaMu said the final number would be 110. Layoffs begin July 31, the document said.
WaMu's cost-cutting action follows numerous other Chicago-area layoffs at subprime lenders, which cater to borrowers with blemished credit or those with little credit history. Mortgage defaults have been rising, particularly among subprime borrowers.
In May, Irvine, Calif.-based New Century Financial Corp. said it laid off 133 workers at its Itasca office. And in April, nearly 900 other Chicago-area workers at four mortgage firms were told that they would lose their jobs.
Also Friday, watchdog agencies for banks, thrifts and credit unions finished guidelines that urge lenders to better scrutinize consumers' wherewithal to repay home loans.
The Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration and the Treasury Department's Office of the Comptroller of the Currency and Office of Thrift Supervision took the action amid housing-market woes and pressure from lawmakers who believe there are shortcomings in the oversight of the mortgage industry.
The voluntary standards, which apply to federally regulated lenders, call for verification of consumers' incomes in most cases. Borrowers should have clear disclosures of their mortgage terms and have at least two months to refinance a loan, without penalty, that is about to adjust to a higher rate.
The Mortgage Bankers Association cautioned that the guidelines would tighten credit for borrowers. It urged Congress not to turn what would be voluntary standards into law. Although the guidelines wouldn't affect state-regulated companies, many state regulators are expected to follow suit.
But Sheila Bair, the FDIC's chairman, said in a statement that because the guidelines won't affect non-bank lenders, which have been the main originators of subprime loans, it is "essential for Congress or the Federal Reserve to establish comparable principles" for all lenders.