February 27, 2006

Mortgage REIT Cancels Dividend, Cites Loan Losses

A mortgage REIT has some news for Wall Street. “ECC Capital Corp., a mortgage finance real estate investment trust, said on Monday it would not pay a first-quarter dividend on its common stock, citing losses in its mortgage banking segment.”

“‘Given current conditions in the whole loan market and the operating losses in our mortgage banking segment, we plan to retain capital and liquidity in order to provide greater flexibility in the disposition of our held-for-sale loan portfolio and for the prudent operation of our business,’ Shabi Asghar, ECC Capital’s president and co-chief executive, said.”

“The company, which is required to distribute at least 90 percent of its REIT taxable income each year, said future dividends will be at the discretion of its board of directors and will depend on the performance of its mortgage banking segment, desire to maximize corporate liquidity, maintenance of REIT status, and other relevant factors.”

“Earlier in 2006, the company announced plans to lay off 440 employees, or 27 percent of its work force, and consolidate seven wholesale loan processing centers into three.”

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Comment by arizonadude
2006-02-27 06:35:52

I think we will see alot of small loan companies close up shop and run with there money. I think there are a lot of mom and pop companies running out of the basement right now. In a normal market there just won’t be enough volume to support all of them.

Comment by bottomfisherman
2006-02-27 06:45:47

There are also plenty of boiler room operations out there as well. They’ve milked this RE kahuna for all it’s worth and are now shutting down and moving back to the Bahamas with plenty of loot.

Comment by arizonadude
2006-02-27 06:52:32

Reminds me of that old Iron Maiden song, “Run to the Hills, Run for your Life”.

Comment by boulderbo
2006-02-27 06:53:08

mortgage employment from 200k in 2001 to over 500k in 2005, so you probably need about 150k going into this slowdown. you think that may 400k into the unemployment rolls will effect the economy? oh, and our buddies over at novastar have yet to drop the bomb.

Comment by bottomfisherman
2006-02-27 07:11:17

Yes, and will those unemployment checks cover their monthky nut?

I think not.

Comment by Robert Cote
2006-02-27 06:44:46

“Loses” not “anticipated loses.” The SEC has better start hiring, there’s going to be a lot of this. Market opening down 31%!

Understand how very important this is. We are talking about their getting mortgage lates/defaults, that’s the only way a REIT could sustain loses large enough to declare a loss. Well, not the only way. Their Co-CEOs pull down 10 mil in salary for a company with a 200 mil market cap.

“Given current conditions in the whole loan market and the operating losses in our mortgage banking segment, we plan to retain capital and liquidity in order to provide greater flexibility in the disposition of our held-for-sale loan portfolio and for the prudent operation of our business,” Co-Chief Executive Shabi Asghar said in a statement.

Translation: They’ve been left hold some toxic mortgages in their own possession and literaly need to pay someone to take them off their hands.

Remember people, these are not in the banking system. Yet.

Comment by OCmetro
2006-02-27 07:09:57

10 mil salary for a 200 mil company??! that is absurd. But then again, these things are scams to the highest order. You know, I wonder after this shakes out what will happen in the lending industry. You have so many people making so much in commissions and it is work that does not require much in the way of education. Do you think this will be the last time that 22 y/o with nothing more than a high school education can make 200K selling loans?

Comment by beantownbubble
2006-02-27 07:10:34


Can you explain what you are hinting at ? Where in the banking system will these toxic portfoils show up ?


Comment by Robert Cote
2006-02-27 08:09:12

I didn’t explain fully because it is complicated but here goes. Subprime originators like ECC Capital Corp. bundle and resell their loans on the secondary market. The reason for their announced loses this morning is because they got stuck with a pile of the very worst mortgages because the the secondary market has been tightening their requirements. Now ECC is going to offer these dogs at a steep discount and someone will buy them because in effect they look like very good reurn rates. F.I.; a $100,000 loan at 10% is sold for $80,000 (ECC kicks in $20,000) and now you’ve got a 13% return. Pretty good? Nope, you’ve got a 13% nonperforming loan in 6 months. The secondary market just isn’t assigning enough risk premium to these loans. Kudos to CALPERS for announcing last year that they were divesting ahead of this train wreck. Everybody in the financial industry has at least a few of these high paying loans in their portfolio and they don’t have anywhere near enough reserves to cover the true risk.

Comment by beantownbubble
2006-02-27 09:27:07

I have pretty much picked up on that much so far. However the portition I don’t understand is this. Once these loans start to underperform who on earth is going to buy for anything less then an extreme discount on the return.

My assumption has been everyone has forgotten about risk because the returns were getting better and better. As soon as this is no longer the case doesn’t this work in reverse ? (A mad sell off for lower and lower cost)

So I can see the little guy (or the bigger fool) getting caught by this one, but large banks and financial institutions ?

Its possible I am very naive on this one. But isn’t this what these people do for a living ?

If I don’t see the risk premium show up very soon I for one will be extremely worried.

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Comment by DC Condo Watcher
2006-02-27 06:50:04

OMG, DC housing prices fell?!!? What? How could this happen? I mean, just because there are 4 times as many homes listed doesn’t mean prices will fall. They NEVER do!


Comment by Melody
2006-02-27 08:40:04

Took them a long time to come up with that info…

Comment by Arwen U.
2006-02-27 06:59:03

DC Condo Watcher,

Boy, they sure don’t hurry these stories out. We were all aware of this in the first week in January. I am so glad for this blog that gives me ahead-of-the-curve data as opposed to lagging stuff.

Comment by crispy&cole
2006-02-27 06:59:08

5.2 months supply and growing (New Homes Data)

Comment by crispy&cole
2006-02-27 07:00:31

Keep building and we will have plenty of fire wood!

Comment by GetStucco
2006-02-27 07:11:39

New home sales slip 5% in Jan.
Inventory of homes on market rises to record 528,000
By Rex Nutting, MarketWatch
Last Update: 10:01 AM ET Feb 27, 2006

WASHINGTON (MarketWatch) - Sales of new homes in the United States fell 5% to a seasonally adjusted annual rate of 1.233 million in January, the lowest in a year, the Commerce Department said Monday.
The number of new homes on the market increased 2.5% to a record 528,000, representing a 5.2-months supply at the January sales pace. The months’ supply is the largest in nine years.

Comment by arizonadude
2006-02-27 07:13:10


Comment by GetStucco
2006-02-27 07:15:11

P.S. PPT, time to run some water out the nozzle of that fire hose you are holding!


Comment by easthawaii
2006-02-27 09:58:37

Thanks for the charts. They say it all real quickly.

Comment by Northern VA
2006-02-27 07:15:37

If I remember correctly in January home builders started new construction at a seasonally adjusted 2.2 Million rate, selling at a 1.2 Million rate they will surely be growing inventory fast!

Comment by Pismobear
2006-02-27 19:57:55

So they started 183,000 homes in January ( appx 2.2m). So they back off the next few months to ave 100,000/mo = 1.2m/yr. Is the math correct sports fans.

Comment by beantownbubble
2006-02-27 07:16:51

Bigger-Than-Expected Drop in New Home Sales Indicates Five-Year Housing Boom Is Slowing


“The Commerce Department reported Monday that sales of new single-family homes dropped by 5 percent to a seasonally adjusted annual rate of 1.233 million units last month.”

“That was a bigger drop than analysts had been expecting and provided support to the view that the housing market, after setting sales records for five straight years, is slowing under the impact of rising mortgage rates.”

These guys can never see the trees through the forest.

Comment by GetStucco
2006-02-27 07:21:57

Hey BeanTownBubble,

Do you know BeaconStreet? We sure miss his posts anymore! I am really curious to know if he has changed any of his views by now, as the data are rather in opposition to most of what he ever said here. Please ask him to start posting again, if you know who he is…

(You can find him at MIT Econ, if I correctly inferred his handle.)


Comment by beantownbubble
2006-02-27 07:50:48

No I don’t know him, although I did enjoy his posts. He had some very interesting views on this market. Is he on the Faculty @ MIT Econ ?

I haven’t seen MassHomeOwner around for a long time. I would be interested in how he feel about the market right now, considering he was such a bull.

Comment by GetStucco
2006-02-27 09:33:31

Bulls seem conspicuously scarce on this blog these days. I wonder if they have given up denial and changed their blog handles to reflect newfound enlightenment?

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Comment by Out at the peak
2006-02-27 07:34:24

Down 35.5% and the day has just begun.

Comment by scdave
2006-02-27 08:42:09

I suggest everyone scroll up and read Robert Cote’s blog again. He is SPOT ON….The sub-prime market will go first…The new housing market will continue to slow effecting employment..When the lenders start their “Short Sales”, it will all come apart..If you did not have a opportunity to read it, I suggest you reasearch the “UCLA Anderson School” forcast (9/05) for the Nation and in particular, California…I believe its right on the money…

Comment by Robert Cote
2006-02-27 08:59:02

Thanks for the kind words. The Anderson forecast also includes the scary phrase, “uncharted territory.” When economists say that keep a full tank of gas in your car. My only objection to their predictions is the speed. They talk about years and I honestly see the housing sector getting slammed in the next few months and then years of cleaning up the mess. So I’m saying 20% off the top this spring and then the Anderson Forecast going forward from there, multiple years of single digit declining prices. I am so glad I’m closing escrow this week.

Comment by beantownbubble
2006-02-27 09:42:55

I sold my house a few months ago and I am still trying to figure out where to put it. Would you mind sharing what you plan on doing ?

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Comment by beantownbubble
2006-02-27 09:45:29

I sold my house a few months ago and I am still trying to figure out where to put the “liberated” equity. Would you mind sharing what you plan on doing ?

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Comment by scdave
2006-02-27 10:50:01

CASH !!!!!!!!!!!!!!!!!!!!!!!

Comment by foreclose_me
2006-02-27 14:12:27

the next better thing to a bank account (with only 100K protection) is treasurydirect.gov
Won’t protect you from dollar collapse or government default(neither will bank accounts), but you won’t have to worry about bank collapse. 4-week t-bills are the best thing to cash.

Comment by shel
2006-02-27 08:38:37

this mortgage REIT thing makes sense even just from the anecdotal point of view of a potential buyer, in the midwest no less, out there looking at open houses, who has noticed that some of the only people looking lately don’t seem like they would know how to write the check for their mortgage payment. I love my fellow man, really, but I’m seeing some challenged-seeming people out there looking at houses I can’t believe they can really afford. As well as very very young people, young enough to get the highest auto insurance rates young.
The newhomes in the area have just started the 10K in freebies, free plasma tvs promos! Hadn’t seen that before now…
There used to be 20 or 25 new home developments in the little map from the ann arbor news; now there are 50 or 60, and they stretch them out a little farther from town, making the area lose the only appeal it really ever had.

did people catch on suze orman the other night the guy who called in and said he was *18* and a loan officer (asked about his mom’s paying off her mortgage or saving in the bank)!? You don’t even need to finish highschool apparently!

Comment by beantownbubble
2006-02-27 09:36:04

I did catch this segment suze ormans show. I usually cant watch more then about 5 minutes of her show without counting to ten very slowly.

She was feeding that kids ego.

btw Isnt the a 15 year mortgage about 25 basis points less then a 30 year. SuzE was insisting it was 50 basis points.

Comment by scdave
2006-02-27 10:56:43

There is a huge siminar comming soon the San Fransico. Orman will be there along with all the motivational speakers and the climax will be none other than Donald Trump…Its just a huge LOVE FEST for wannabe millionairs…What the Donald will fail to tell them however is that he started out with 300 milof daddy’s money…You have to be a absolute MORON if you can’t make maoney with that kind of stake…

Point being is this; When the “I will tell you the secret” siminar’s start, the party is over…

Comment by beantownbubble
2006-02-27 11:20:35

Or how Trump went Bankrupt after the last Realestate downturn.

When Mark Cuban is asked who is worth more Trump or himself. He always simply states I am more liquid.

The Donald has never done very good in a bear market, I doubt it will be any different this time.

Comment by VaBeyatch
2006-02-27 14:54:56

Here in Norfolk, VA there was some sort of investment seminar where people paid $1200 to see the Donald. After arriving, they were treated to a video of him:



Comment by Женя
2009-01-20 07:18:52

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