Mortgage Daily Logo
mortgage news from industry experts

$5.6 Billion Subprime Charges Announced

 

$5.6 Billion Subprime Charges Announced

Recent mergers, acquisitions and corporate activity

October 5, 2007

By COCO SALAZAR

photo of Coco Salazar
Three companies disclosed today subprime-related charges totaling more than $5.6 billion. But despite the massive charges, one billionaire investor successfully bid on the operations of a bankrupt nonprime lender.

But first, Fitch Ratings announced it downgraded the short-term Issuer Default Rating of Popular Inc. to F2 and placed other debt on review for possible downgrade. Continued concerns about earnings, asset quality pressure and the parent company’s liquidity were cited. While the Popular’s U.S. subprime mortgage exposure still appears manageable overall, stress in that mortgage sector will likely result in sizable additional charges.

Fitch also downgraded First Horizon National Corp.’s debt ratings in light of declining profitability. The agency also downgraded the debt ratings of affiliated companies.

The Federal Deposit Insurance Corp. said Thursday that Miami Valley Bank of Lakeview, Ohio, has failed and its deposits will be taken over by Citizens Banking Co. As of Monday, Miami Valley had $86.7 million in total assets and $76 million in total deposits, $14 million over the federal deposit insurance limit. Citizens will assume the $62 million in insured deposits for a two percent premium.

Ohio’s Superintendent of Financial Institutions closed Miami Valley yesterday, but the bank’s two offices were scheduled to reopen today as branches of Citizens, the FDIC said.

Merrill Lynch today warned it expects a third quarter net loss, of up to 50 cents per diluted share, primarily due to an estimated $4.5 billion in write-downs on collateralized debt obligations and subprime mortgages. The negative valuation adjustments partly reflect significant dislocations in the highest-rated tranches of these securities caused by unprecedented credit spread movements and an intensified lack of market liquidity for these asset classes during the quarter.

However, the New York-based company noted it significantly reduced its overall exposure to CDOs and subprime mortgages, and that it is “beginning to see signs of a return to more normal activity levels in a number of markets” while continuing to see strong long-term growth trends in each of its global businesses.

Following Merrill’s announcement, Fitch announced it revised the rating outlook for the company and its subsidiaries to Negative from Stable.

Citing a weakening housing market and disruptions in the secondary market, Washington Mutual Inc. said its net income will likely be a whopping 75 percent lower than the third quarter 2006. Of approximately $1.4 billion in expected losses, about $975 million will be a loan loss provision primarily reflecting the weakening credit quality of subprime mortgages and home equity loans. That reserve is about $550 million more than the amount of loans it expects to charge off as unrecoverable. The other $4 million or so in losses will result from write-downs in held-for-sale mortgage loans, trading securities portfolio and investment grade mortgage-backed securities.

WaMu noted it looks forward to “an improved fourth quarter as we continue to see good operating performance in our Retail Banking, Card Services and Commercial Group businesses.”

Sovereign Bancorp Inc. said today it will increase its third quarter provision for credit losses to between $155 million and $165 million pre-tax. The Philadelphia-based company had previously estimated the charge at between $104 and $114 million.

The charges are related to poor performance on an $0.5 billion residual nonprime home equity portfolio remaining after its exit from correspondent home equity lending early last year. The company announced in December 2006 it would exit wholesale lending.

WL Ross & Co. LLC, through AH Mortgage Acquisition Co., won an approximately $500 million “stalking horse” bid to acquire American Home Investment Corp.’s mortgage servicing platform and mortgage servicing rights, the bankrupt company announced today. The sale, still subject to bankruptcy court approval, is expected to close this month.

The Irving, Texas-based operation services over 200,000 loans for more than $50 billion, the statement said. In excess of 400 people are employed by the unit.

Ross, a billionaire who specializes in turnarounds of distressed businesses, told MortgageDaily.com last month that he feels that now is the time to start his planned entry into the mortgage business with the acquisition of a servicing business.

Ft. Wayne, Ind.-based Freedom Financial Holding Company Inc. announced this week an agreement to acquire MStar.com in a deal expected to close by next month. The mortgage broker hopes to improve efficiency and reduce costs with its acquisition of the mortgage technology provider.

Freedom, which has filed for a public offering, said its focus is to acquire residential originators in key U.S. markets.


Coco Salazar is an associate editor and staff writer for MortgageDaily.com.e-mail: MortgageWriter@aol.com

next story

back to current headlines
 

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI

Related Posts

THE TRUSTED PROVIDER OF ACCURATE RATES AND FINANCIAL INFORMATION