Mortgage REIT Cites Yield Curve For Loss
A mortgage REIT reported a loss this morning. “Luminent Mortgage Capital, Inc. (NYSE: LUM - News) today reported a net loss for the quarter ended December 31, 2005 of $113.4 million, or $2.79 loss per share. ‘We have accelerated the repositioning of our portfolio due to the persistence of yield curve flattening and ongoing increases in short-term rates,” said Gail P. Seneca, CEO.”
“For the latest fourth quarter, three analysts on average expected the company to earn 4 cents per share, excluding special items. The real-estate investment trust said the difference between its net loss and the REIT taxable net income for the latest quarter mainly relates to a $112 million non-cash impairment charge on mortgage-backed securities.”
“In November 2005, Luminent announced a share repurchase program permitting the Company to acquire up to 2,000,000 shares of its common stock. To date, Luminent has repurchased 1,501,750 shares. Today, Luminent announced the initiation of an additional share repurchase program to acquire an incremental 3,000,000 shares.”
“Luminent Mortgage Capital, Inc. invests primarily in the United States agency and other single-family, adjustable-rate, hybrid adjustable-rate, and fixed rate mortgage-backed securities.”
From the LA Times. “Demand for mortgages and consumer loans weakened at U.S. banks in recent months, a Federal Reserve survey released Wednesday found.” “‘On net, 44% of domestic banks reported weaker demand for mortgages to purchase homes, a notably larger fraction than in the October survey,’ the Fed said in its quarterly survey of senior loan officers.”
“Banks said they expected loan quality on loans to businesses and households to deteriorate this year from current high levels. About 40% of domestic banks said they expected the quality of their nontraditional mortgages, which include interest-only loans, to decline. Bank regulators have recently cautioned banks on risks associated with commercial real estate lending and nontraditional mortgages.”
We had to know that this was coming. The flattening of the yield curve is going to do a lot of damage to to spreads. Look forward to more news like this. I’ve bought puts on ^HGX, thy’re expensive but it will play out in the long term.
Why the heck does LEND continue to go up if all the other mortgage REITS are taking it in the shorts!??!?
A friend of mine is touting a private REIT that invests in commercial property. Because my real estate interest has been focused exclusively on residential property, I’m not in a position to evaluate his incredibly optimistic claims. Does anyone have a general opinion on REITs that invests in commercial property?
much better risk profile than the residential sector. the commercial property not only has a borrower, but multiple tenants, so the credit risk is spread between the two. many residential conduits are currently looking to enter the market with both feet, as they are having trouble selling their 100% ltv, non-owner, stated income, 520 fico loans.
Most demand for commercial properties come from RE related industries. If all those RE jobs added in the past 5 years are lost, who needs more office space?
Hypothetical question: Do the “winners” of bidding wars still consider themselves “winners”?
If the lending is expected to slow down significantly this year and exotic loans are on the decline…
Whats going to happen to all the jobs created in the mortgage and finance industry? Lots of mortgage brokers with making the big bucks for the past few years are probably going to find themselves with significantly less money or out of work.
I think the mortgage industry is going to be ground zero for the housing bust. Builders and developers will just scale back production, suppliers should fair well since there is still commercial, industrial and government work to be had but less demand for houses & less equity out there means much less lending activity.
I said it before, get ready to buy some nice homes and cars at auction when all these punk kids working for Ameriquest, New Century and all the others loose their income and end up working as car salesmen or insurence salesmen earning a third what they were making.
Commentary on mortgage prepayments, duration and the curve.
Danger Will Robinson– commercial real estate will experience a glut of unleased and unoccupied properties…the lending bubble is not exclusively residential.
and this is because…..
Please explain.
This is because it is a LENDING or CREDIT bubble. Real estate values (residential or commercial) have increased because of an increase in the pool of available buyers or participants.
Additionally, say, for instance, that residential real estate has been overbuilt by 10-25%. Any commercial infrastucture built to serve that “percieved” pool of occupants would inherently be unnecessary.
Link to previous post:
http://www.xanga.com/russwinter