Puerto Rico’s Popular to exit sub-prime lending

Popular Inc., a San Juan, Puerto Rico-based bank holding company, said it would close its sub-prime lending unit, a move that would cost the bank $39 million in charges and about 627 people their jobs.

The company, owner of Banco Popular de Puerto Rico, plans to exit its wholesale nonprime mortgage origination business early in the current quarter and close its wholesale broker, retail and call-center units, said a federal filing Tuesday.

“Certainly, our performance has not been up to our standards,” said Chief Executive Richard Carrion 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 U.S. rose during the third quarter to 12.56% of the total, the most since the first quarter of 2003, the U.S. Mortgage Bankers Assn. 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 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 prices drop.

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