Mortgage Lenders Network, a Middletown-based mortgage company that intended to bring 1,000 new jobs to Connecticut and house its employees in a state-of-the-art complex currently under construction in Wallingford, announced Tuesday it would stop funding residential loans through its wholesale unit, and laid off an undisclosed number of employees.

The company, known for its subprime lending business, will continue to service its existing loans and operate its retail franchise.

But the company is working on a restructuring plan, according to James Heckman, spokesman for the Connecticut Department of Banking. He could not disclose the specifics of the restructuring, but said he understands the company intends to stay in business.

MLN executives will sit down in the next few weeks to discuss the future of its wholesale mortgage operations, according to James Pedrick, the company’s executive vice president. The Associated Press has reported that MLN said its goal last year was to produce more than $12.1 billion in loans, 80 percent of which would be subprime loans.

Pedrick said the construction of the new 305,000-square-foot facility in Wallingford has not experienced a “change in direction.”

But this latest development could put into jeopardy a state loan intended to support the company’s expansion.

“We were working toward providing them a $4 million loan to support their expansion project of 1,000 employees in Connecticut,” said Jim Watson, spokesman for the state Department of Economic and Community Development. On Wednesday, DECD employees were trying to discover and evaluate the details of the layoffs and their impact.

‘MLN Needs to Pause’

In 2005, MLN announced its intention to expand in Connecticut with the new facility, and hoped to add 1,000 new jobs in the state over eight years.

“We were very optimistic about its impact on the local economy,” Watson said. “One thousand jobs would certainly have an impact.”

MLN said in a prepared statement Tuesday that “the economics of the wholesale mortgage market have deteriorated dramatically over the past two months industry-wide.”

“Until we see credit quality and margins return to acceptable levels, we have determined that MLN needs to pause from wholesale broker originations,” MLN President and Chief Executive Officer Mitchell Heffernan said in the statement.

The company’s problems apparently became evident to employees and brokers who work with the company last Friday. The Massachusetts Mortgage Bankers Association issued a statement advising brokers who work with MLN of the situation.

“MLN stated that it would ‘attempt to place the loan transactions that were scheduled to fund with MLN as lender, with another properly licensed lender.’ Additionally, MLN will (a) ensure that all remaining loans in its pipeline that are scheduled to close will be transferred to another properly licensed lender to minimize any potential inconvenience to the borrowers and (b) not take further loan origination applications at this time,” according to MMBA.

On Dec. 8, Heffernan issued a statement – which was removed from the company’s Web site by Wednesday – saying, “MLN continues to operate its national lending business, actively accepting loan submissions and funding and servicing loan production.”

MLN is not the first subprime lender to run into trouble in recent months. Last year, two large subprime lenders – including Ownit Mortgage Solutions – shut down, citing “the current unfavorable conditions of the mortgage industry,” according to the AP.

Despite the recent pressure on subprime lenders, MLN since May had added jobs and broken ground on the new facility, and many people in Connecticut’s mortgage industry assumed the company was healthy.

“I was surprised,” said Kim Neilson, senior vice president at New Britain-based McCue Mortgage. Although MLN is a competitor, Neilson acknowledged that its news could have a negative affect on the state’s economy.

“They were considered a pretty large wholesale lender,” she said. “You know, I’m surprised to hear it. It’s in our state and it’s going to have an effect on our state. Sorry to see that, even though they were a competitor.”

Bill Calderara, past president of the Connecticut Mortgage Bankers Association and senior vice president of Fairfield County Bank Corp., echoed Neilson’s sentiment.

“It’s surprising,” he said.

But, he added, anytime there is a slowdown in the housing market, subprime loans “are usually the first loans that have problems.” Holders of subprime loans are usually hit highest with delinquency rates, and that eventually can hit profits.

Since Alt-A loans – loans that are driven by credit scores, and whose borrowers do not have proof of income – have become more popular and offered by lenders who concentrate on traditional loans, subprime lenders have had an even tougher time, Calderara said. By offering those loans, regular lenders take the “cream of the crop” borrowers out from under subprime lenders.

And since both Fannie Mae and Freddie Mac have started offering A-minus mortgages, which are conforming mortgages for people with less-than-stellar credit, even more customers have been taken away from subprime lenders.

“Over the last few years, both the agencies have tweaked their models to go a little deeper into A-minus rates,” Calderara said.