Turmoil in mortgage and capital markets is showing up this week not only in the third quarter earnings of lenders including Bank of America Corp., Washington Mutual Inc., Citigroup Inc., and Thornburg Mortgage,  but mortgage insurers like PMI Group Inc. and online stock broker E-Trade Financial Corp.

Also this week, GMAC Financial Services announced it will cut 3,000 jobs, or 25 percent of the work force at its Residential Capital LLC lending unit, and Countrywide Financial Corp. said its plan to eliminate up to 12,000 jobs as part of a restructuring of the company could cost $150 million.

ResCap job cuts

As “severe weakness in the housing market and mortgage industry continues to prevail,” GMAC Financial Services said Wednesday it would layoff about 3,000 employees at its mortgage lending subsidiary, Residential Capital LLC.

The layoffs, representing about 25 percent of ResCap’s workforce of 12,000, will cost $90 to $110 million to implement.

Countrywide layoffs

Countrywide Financial Corp. said it plans to cut its workforce by up to 12,000 and downsize the company will cost $125 million to $150 million. It will cost up to $89 million to terminate leases at facilities the company is closing, and up to $35 million to provide one-time termination benefits to employees. Fixed asset disposals and other miscellaneous costs could total $26 million, the company said.

Earnings: PMI Group

Mortgage insurer PMI Group, Inc. said today that after reviewing default data for September, it expects losses from paid claims, loss adjustment expenses and increased loss reserves to total $350 million for the third quarter. PMI said those losses, along with an expected $65 million net loss at subsidiary FGIC, are expected to result in a $1.05-per-share loss for the quarter when the company posts results on Oct. 30.

Competing mortgage insurer MGIC Investment Corp. on Wednesday reported third quarter losses of $372.5 million, and said it will lose money in 2008 as it pays out $1.5 billion in claims.

Bank of America

Bank of America today reported third-quarter net income declined 32 percent to $3.7 billion, as “unprecedented market disruptions” drove earnings in Global Corporate and Investment Banking down 93 percent to $100 million, and produced a $717 million loss in Capital Markets and Advisory Services.

Bank of America also reported a $527 million loss from structured products, including asset-backed and residential mortgage-backed securities, commercial mortgages, collateralized debt obligations (CDOs) and structured credit trading.

Net revenue from consumer real estate in the global consumer and small business banking division was up 15 percent to $837 million, as home equity balances rose and first mortgage originations grew. But profits fell 55 percent to $73 million on higher credit costs.

Bank of America said first mortgage originations were up 27 percent, thanks in part to the success of its No Fee Mortgage PLUS loan, which accounted for 21 percent of first mortgage production in the third quarter.

The Charlotte, N.C.-based bank increased provision for loan and lease losses to $9.54 billion, up from $8.87 billion a year ago. Net charge-offs were $1.57 billion, or 0.8 percent of total average loans and leases, compared with $1.28 billion, or 0.75 percent, in the third quarter of 2006.

WaMu

Washington Mutual said Wednesday that third quarter profits fell 72 percent from the same quarter a year ago, to $210 million.

WaMu Chairman and Chief Executive Officer Kerry Killinger said strong performance in retail banking, card services and commercial businesses helped the bank remain profitable as the company “continued to adapt our home loans business to meet market conditions.”

The home loan group saw losses for the quarter grow to $348 million, driven largely by a $222 loss million on the sale of mortgages, compared to a $192 million gain in the previous quarter.

WaMu said it boosted provisions for loan losses to $323 million, up from $101 million in the previous quarter, to reflect rising delinquencies and the impact of retaining most of its prime non-conforming loans rather than selling them.

Prime home loan volume was down 22 percent from the second quarter as refinance activity fell, and subprime mortgage production fell 80 percent to $483 million.

Citigroup Inc.

Citigroup Inc. reported that third quarter profits were down 57 percent to $2.38 billion, thanks in part to $1.56 billion in losses on subprime mortgages warehoused for future collateralized debt obligation (CDO) securitizations, CDO positions, and leveraged loans warehoused for future securitizations.

Losses in U.S. consumer lending totaled $227 million, compared to a $521 million profit in the same quarter a year ago, despite a 5 percent increase in revenue to $1.5 billion.

Citigroup said it took an $854 million pre-tax charge to increase loan loss reserves in U.S. consumer lending, and that credit costs were up due to weakening leading credit indicators, including higher delinquencies in first and second mortgages, macro-economic trends, and the change in estimate of loan losses.

Citigroup said the increase in revenue in U.S. consumer lending was driven by growth in net interest revenues, net servicing revenues, and the acquisition of ABN AMRO Mortgage Group in March. But the integration of ABN AMRO and higher staffing costs related to collections also helped expenses grew by 37 percent.

Thornburg Mortgage

Santa Fe, N.M.-based jumbo lender Thornburg Mortgage Inc. said losses for the quarter totaled $1.09 billion, compared to profits of $75.3 million a year ago, as it sold $21.9 billion in securities backed by adjustable-rate mortgages at a loss.

The company said it would not pay a dividend to shareholders in order to make “conserving cash, enhancing liquidity and selectively acquiring new assets our key priorities during the fourth quarter,” but that it believes it will be able to retain its status as a real estate investment trust, or REIT.

Third-quarter loan originations totaled $1.3 billion — $700 million short of the company’s target — and Thornburg said it hopes to bring originations back to $400 million a month by the end of the fourth quarter.

Thornburg said its wholesale lending channel, launched in June 2006, originated $288.2 million in loans, a nearly seven-fold increase from the $37.1 million in originations posted in the third quarter of 2006.

Thornburg said it now supports 541 brokerage firms representing more than 5,500 loan originators, and reach its goal of having 700 wholesale lending partners by year-end. The average wholesale loan will be closer to $1 million than initial estimates of $550,000, the company said.

Most of Thornburg’s dramatic losses were from sales of securities at reduced prices. The company said it sold about $16.4 billion in securities backed by ARM loans, and that its creditors sold another $5.5 billion to satisfy debts. All told, losses on the sales totaled $1.093 billion, even though most were rated AAA- or AA-, Thornburg said.

At the end of September, the company’s portfolio consisted of 94.8 percent AAA-rated assets and 5.2 percent below AAA-rated assets

To avoid additional forced asset sales, Thornburg said it obtained short term financing that required it to pay commitment fees totaling $7.8 million for the quarter. Thornburg said $900 million of its $1.8 billion in reverse repurchase agreement financing capacity is currently unused.

At the end of September, 60-plus day delinquent loans and real-estate owned properties made up 0.27 percent of Thornburg’s $24.8 billion portfolio of securitized and unsecuritized loans, up from 0.23 percent at the end of July. That compares to 2.81 percent for the industry at large at the end of the second quarter, Thornburg said.

The lender said it increased provisions for loan losses by $2.6 million, to $17 million, and that the company’s borrowing costs averaged 5.78 percent, compared to 5.5 percent in the previous quarter.

To cut costs, Thornburg has eliminated incentive payments to managers that averaged $8.9 million per quarter in the first half of 2007, and said declines in the company’s stock price has resulted in $15.5 million in recaptured expenses from the reduced value of phantom stock rights granted to employees.

E-Trade

E-Trade Financial Corp. said Wednesday it expects third quarter losses of $58 million, because of increased provisions for loan losses and securities write downs, some related to its investments in mortgage-backed securities.

Provision for loan losses in the quarter increased to $187 million, mostly because of higher loan delinquencies and net charge-offs, while securities write downs in the quarter totaled $197 million, pre-tax.

This amount was previously forecasted to occur in the second half of 2007 and throughout 2008, and was realized instead in the third quarter rather than in future periods. Total net revenue for the third quarter declined 45 percent year-over-year to $321 million as a result of the higher provision and securities write downs.

At the end of September, E-Trade’s investments included $16.9 billion in securities backed by mortgage loans with 80 percent or higher loan-to-value ratios and private mortgage insurance. Delinquencies in the one- to four-family home mortgage portfolio totaled $365 million, or 2.16 percent. E-Trade also had a $12.4 billion home equity portfolio, with $404 million or 3.25 percent of loans delinquent.

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