Dec. 7 (Bloomberg) -- Ownit Mortgage Solutions Inc., a California-based home lender part-owned by Merrill Lynch & Co., closed this week and told more than 800 workers not to return, a former employee said.

The company informed its staff of the closure on Tuesday, Kevin Panet, who was a training manager for the Agoura Hills- based lender, said in a telephone interview today. Chief Executive Officer William Dallas didn't return messages left on his voicemail and with an assistant.

Ownit joins Ameriquest Mortgage Co., Countrywide Financial Corp., H&R Block Inc.'s Option One, BNC Mortgage Inc. and other lenders in shutting operations or laying off employees as the U.S. housing market slows. Delinquencies are rising, home prices are falling and borrowers of adjustable-rate mortgages are facing higher monthly payments.

``There were meetings with top management late in the day on Monday saying, `Look, we're having some problems with our partners and brace yourselves,''' Panet said. ``It's a lousy market right now, and it's heading down not up.''

Panet referred questions about the reasons for Ownit's closure to Dallas.

The Los Angeles Times today reported that Ownit ran out of cash needed to meet obligations. The newspaper said Ownit issued a statement blaming New York-based Merrill for cutting off its funding. Merrill spokesman Bill Halldin said today that Ownit's statement was ``misleading.'' He declined to elaborate.

Expanding Ownit

In 2003, Dallas and a group of investors including Chicago- based CIVC Partners bought Ownit. They expanded the company's annual mortgage issuance at least eight-fold to more than $8 billion last year.

Nonprime News, an industry newsletter, ranked Ownit as the 11th-largest U.S. issuer of so-called subprime mortgages, or home loans made to borrowers with low incomes, untested credit or a track record of default or delinquency. The company issued $5.46 billion of loans during the first half of the year, 44 percent more than a year earlier, according to the newsletter.

``This was a good company, we were doing good things, we were growing, and we were helping people to achieve the dream of home-ownership,'' Panet said.

Calls to several partners and officials of Chicago-based CIVC weren't returned.

Dallas co-founded San Jose, California-based First Franklin Financial Corp. in 1981. The company was later sold to Cleveland-based National City Corp. and has since become the fifth-biggest subprime lender. Dallas headed First Franklin until 2003. In September, New York-based Merrill agreed to buy First Franklin for $1.3 billion, under a plan by the investment bank to create a pipeline of loans it can package into bonds.

Packaging Loans

Merrill, the world's second-largest securities firm by revenue, bought a minority stake in Ownit last year, Dallas said in an October 2005 interview with the American Banker.

According to regulatory filings, Merrill this year has sold at least $4 billion in bonds packaged from Ownit home loans.

Merrill is a passive minority investor in Bloomberg LP, the parent company of Bloomberg News.

Panet said he saw Dallas yesterday when he went to the headquarters to clean out his office.

``I shook his hand, I said thanks, and he looked at me, and he said, `You know, we did our best,' '' Panet said. ``Obviously people are upset about this, and before Christmas, it doesn't help.''

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: December 7, 2006 18:03 EST