HSBC Holdings PLC, Bear Stearns Cos., Bank of America Corp., E*Trade and mortgage repurchaser Fannie Mae are among the latest companies to reveal billions in lending-related losses.
HSBC today said it would take a $3.4 billion charge during the third quarter related to worsening losses at HSBC Finance Corp., the company’s U.S.-based mortgage lending business.
The charge was $1.4 billion greater than expected by a simple extrapolation of trends during the first half of the year, suggesting losses are accelerating, HSBC said in a press release.
“Deterioration in U.S. housing markets is affecting consumer finance credit quality more broadly than hitherto and loan impairment charges are expected to remain high in these conditions,” the company said. “There is the probability of further deterioration if the current housing market distress continues and further impacts the broader economy.”
In an advisory to investors, HSBC warned there is evidence of “changed customer behavior” as foreclosures increase, repossessed properties remain unsold and rental alternatives become more attractive — all factors contributing to increased loan delinquencies.
Bear Stearns said today that the company expects to post a loss in the fourth quarter, with exposure to residential mortgages, mortgage-backed securities and collateralized debt obligations prompting $1.2 billion in write-downs with two weeks remaining in the quarter.
Bear Stearns took $700 million of write-downs on mortgages and leveraged buyout loans during the quarter ending Aug. 31, and reported a 61 percent drop in earnings to $171.3 million.
Bank of America
Bank of America Corp. announced Tuesday it anticipates taking $3 billion in fourth-quarter write-downs related to collateralized debt obligations, and said its losses could grow if housing and mortgage market conditions worsen.
Although Bank of America does not make subprime loans, it has approximately $400 million in subprime-backed exposure in its collateralized debt obligations warehouse, Chief Financial Officer Joe Price said at an investment conference Tuesday.
Consumer real estate, including first mortgages and home equity loans, accounted for only 6 percent of the consumer and small business bank’s earnings this year, but Bank of America is looking to grow market share in the mortgage business, Price said.
Bank of America’s new “No Fee Mortgage PLUS” loan “has really helped us gain share,” Price said, “even as others pull back in the current environment.”
Online stock brokerage E*Trade last week warned investors to expect write-downs on the company’s $3 billion securities portfolio.
The company’s stock has been on a wild ride this week after Citi Investment Research analyst Prashant Bhatia said the company faced a 15 percent chance of bankruptcy. In a statement Monday, the company called the report “sensationalism based on unfounded speculation.”
As it returned to regular financial reporting last week, government-sponsored mortgage repurchaser Fannie Mae disclosed $1.4 billion in third-quarter losses. The losses were blamed on $1.2 billion in credit losses in loans Fannie owns or guarantees and $2.24 billion in write-downs on the value of derivative contracts.
The company also reported results for the first and second quarters, catching up on a backlog of financial reports stemming from the management and accounting scandals that forced Fannie and Freddie Mac to restate several years of earnings.
Net income for the first three quarters of 2007 was $1.5 billion, compared with $3.5 billion for the same period a year ago.
While a return to regular financial reporting could help Fannie win support for relaxing restrictions on its loan portfolio, the company has now become embroiled in an examination of alleged collusion between lenders and appraisers in New York state.
New York Attorney General Andrew Cuomo on Nov. 1 announced a lawsuit against First American Corp. and its subsidiary eAppraiseIT. The lawsuit accuses the companies of bowing to pressure from Washington Mutual to use preferred appraisers Cuomo alleges provided inflated property appraisals (see Inman News story).
On Nov. 7, Cuomo said he had subpoenaed Fannie and Freddie as part of a probe into widespread collusion between lenders and appraisers. That action prompted a scolding from James Lockhart, the director of the Office of Federal Housing Enterprise Oversight, the regulator that oversees the government sponsored entities, or GSEs.
“I feel that you and your staff may not fully understand the differences between the mortgage-backed securities issued by the GSEs and those issued by other entities,” Lockhart said in a letter to Cuomo. Unlike “private label” issuers of mortgage-backed securities, Lockhart said, Fannie and Freddie “retain the credit risk on the underlying mortgages by guaranteeing repayment to MBS holders. Consequently, they have no economic incentive to knowingly purchase or guarantee mortgages with inflated appraisals.”
Lockhart called for a meeting with Cuomo to discuss his demand that Fannie and Freddie stop doing business with WaMu — which has yet to be charged or subpoenaed — and the potential expansion of the investigation to other institutions from which the GSEs’ purchase mortgages.