is firing 500 employees and shutting down its wholesale mortgage lending operations.
The Kansas City, Mo.-based subprime lender said that as of Friday it was cutting about 37% of its workforce. The company's retail, servicing and portfolio management businesses are not affected, it said.
The company is "temporarily stepping away from origination of loans in the wholesale mortgage market," according to an email from an outside spokesman.
The cuts will affect NovaStar's headquarters in Kansas City, Mo., as well as several operations centers in California and Ohio.
The departures include David A. Pazgan, head of NovaStar's wholesale lending organization and president and CEO of NovaStar Mortgage, a subsidiary of NovaStar Financial.
NovaStar plans to take a pretax charge in the range of $17 million to $21 million in the third quarter as a result of the employee terminations.
NovaStar will continue to originate mortgages through its retail operation and meet all of the commitments on already approved loans.
"During this challenging time in the housing market, NovaStar continues to honor its commitments while taking steps to adapt to industry-wide credit conditions and disruptions in capital markets," said Lance Anderson, the president of NovaStar, in a statement.
"Our decision to reduce employment is painful but is required by market conditions and financial discipline," he adds. "As we disclosed previously, the tighter guidelines and adjusted pricing we have adopted will reduce loan originations until the secondary market shows signs of normalizing. This reduction in force includes stepping back temporarily from pursuing new loans in the wholesale market, a decision we are also seeing among some of our peer companies. For now, we believe this is the right thing to do economically."
NovaStar focuses on nonprime loans as well as Alt-A loans. It does not originate prime or agency loans, so the credit quality of its products tends to be lower.
The mortgage industry has been hit hard by rising delinquencies and defaults to borrowers with shaky credit histories as well as stepped up calls for increased collateral on credit lines that banks and brokers provide to mortgage lenders.
A number of lenders have gone out of business altogether or sought strategic partners. Earlier this month,
American Home Mortgage
said it was shutting down as a result of the difficult mortgage market and its inability to meet margin calls.
NovaStar said in late July that it had lined up financing from investors led by MassMutual and Jefferies.
Two weeks ago, NovaStar said that it was suspending funding of some mortgage loans due to the "severe dislocation in the secondary market."
In the second quarter, the wholesale channel contributed 61% of NovaStar's $774 million in loans originated, while the retail channel was 39%.