Nationstar Mortgage, the subprime unit of Fortress Investment Group LLC, said it is no longer accepting new loan applications from brokers, a signal the lender is winding down operations.
Nationstar's decision to stop all wholesale originations became effective on Friday, according to its Web site. Fortress was not available for comment.
Nationstar is the latest in a series of U.S. lenders that have stopped taking loans from independent mortgage brokers, citing problems with underwriting quality and outright fraud.
Last week, London-based HSBC Holdings Plc said it will shut down its U.S. subprime lender, Decision One Mortgage, which also relied on brokers to submit loan applications.
Fortress' subprime operations have become part of a bigger, political story after Democratic presidential hopeful John Edwards said he planned to divest his personal fortune from any lenders trying to foreclose on the homes of Hurricane Katrina victims.
The Wall Street Journal first reported the foreclosure efforts by units of Fortress, which once paid Edwards as a consultant as it ramped up its subprime lending operations.
Fortress, a publicly traded private equity firm and hedge fund, bought Dallas-based Nationstar last year from home builder Centex Corp, which received about $540 million from the deal after taxes.
Nationstar has been a leading U.S. subprime lender. The company said it originated $4.4 billion in subprime loans in the first quarter, putting it among the top ten U.S. subprime originators.
But the industry has been hit hard by escalating defaults and foreclosures, forcing several dozen subprime operators to close, curtail operations or seek bankruptcy protection.
Any approved applications in Nationstar's pipeline will be honored, the subprime lender said. The company's servicing operations, which services over 105,000 loans totaling more than $10 billion, are unaffected.
Edwards worked for Fortress as an adviser after he lost his vice presidential campaign in the 2004 election. Edwards had $16 million invested with the firm and was paid $479,512 by Fortress for consulting work.
New York-based Fortress has more than $43 billion under management and became the first major U.S. buyout group to go public, with a February debut on the New York Stock Exchange.
Fortress shares rose 4 cents to $20.78 Monday on the New York Stock Exchange. (Additional reporting by Jonathan Stempel in New York)