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Money-losing mortgage lender loanDepot reassured investors Wednesday that it has moved $225 million in cash it held at Signature Bridge Bank to another institution and continues to have “full access” to $600 million in credit lines that Signature is a party to.
“All of the company’s cash and cash equivalents are now distributed across large money center banks,” loanDepot said in a regulatory filing. “The company still maintains fully insured custodial deposit accounts at Signature.”
To avert panic when taking control of Signature Bank and Silicon Valley Bank (SVB), federal banking regulators on Sunday announced a “systemic risk exception” providing full protection to depositors at both banks — including for funds exceeding the $250,000 maximum insured by the Federal Deposit Insurance Corp (FDIC).
Shares in loanDepot, which hit an all-time low of $1.25 on Oct. 10 as mortgage rates were nearing their 2022 peaks, gained 4 percent Wednesday, closing at $1.79.
LoanDepot also has a $300 million warehouse borrowing facility, in which Signature is a 50 percent participant, and a $300 million mortgage servicing rights facility with Signature which expires in December 2023.
“There are no acceleration rights under these facilities for a defaulting lender; therefore, we continue to have full access to these facilities under the terms and conditions set forth in the respective credit agreements,” loanDepot reported.
LoanDepot, which is engaged in a proxy battle with founder Anthony Hsieh, racked up $610 million in losses last year but finished the year with an $864 million cash balance.
Signature Bridge Bank is the successor to Signature Bank, the New York-based bank shut down by state banking regulators Sunday after fears about the bank’s investments prompted a run on deposits. The FDIC is operating Signature’s 40 branches in New York, California, Connecticut, North Carolina and Nevada while it markets the institution to potential buyers.
The FDIC is also the receiver for Silicon Valley Bank (SVB) which was shut down by California bank regulators on Friday. The FDIC on Monday said it transferred all deposits held at SVB — both insured and uninsured — to newly created Silicon Valley Bridge Bank, headed by former Fannie Mae president and CEO Tim Mayopolous.
SVB got into trouble because of worries about its investments in government bonds and mortgage-backed securities. Although those investments have a low risk of default, their value declines when interest rates go up. When clients of SVB began withdrawing money over fears that the bank had become insolvent, the government stepped in and took the bank over.
Fears that other banks could be facing losses on their own rate-sensitive investments sparked selloffs in several publicly-traded U.S. banks Wednesday, including First Republic Bank and PacWest Bancorp.
Switzerland’s second-largest bank Credit Suisse was also under selling pressure after reporting a “material weakness” in previous financial reporting. Switzerland’s central bank said Credit Suisse is well capitalized but pledged to provide liquidity if necessary, CNBC reported.
Analysts at Fitch Ratings said Wednesday that while funding and liquidity remain a “key focus” for U.S. banks, “most banks can manage moderate deposit outflows,” and there hasn’t been a major run on deposits at other banks that Fitch rates.
If there’s a silver lining to the troubles rippling through the banking sector, it’s that interest rates have moderated as investors seeking safe havens buy more Treasurys and mortgage-backed securities. While those are the same investments that got SVB in trouble, the increased demand is pushing bond prices up and yields down.
Yields on 10-year Treasurys, which are considered a barometer for mortgage rates, dropped 15 basis points Wednesday to 3.49 percent. That’s down from a 2023 high of 4.09 percent on March 2 and the lowest close since Feb. 2
A mortgage rate index compiled by Mortgage News Daily shows rates on 30-year fixed-rate mortgages falling to 6.55 percent Wednesday, down from 7.1 percent on March 2.
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