First Fed - Should Anyone be Surprised?
Well, First Fed (NYSE:
FED) is in the news again. Should anyone be surprised? The Wall Street Journal
reports the company is having difficulty with losses as a result of delinquencies on its portfolio of option-ARM loans, most of which were made to borrowers with excellent credit, many of which are now souring like a bottle of wine with a bad cork.
All the details of their current travails - and the next leg down in mortgage lending, otherwise known as the Option-ARM, Alt-A time bomb - can be found in the WSJ story.
For some historical background, here's the way things looked last February when a BusinessWeek story on the company was provided some chart-help.
When reading this BusinessWeek report about Santa Monica based mortgage lender FirstFed Financial (FED), it just screamed for some charts to go along with the words and numbers.
The company's stock has been soaring lately, up more than 30 percent since September, as investors speculate on its future. Some believe the company to be a takeover target, others feel that the housing market is poised for a rebound and their bottom line will improve, while short sellers bet that it will all come tumbling down around them.
Something is sure to happen soon at the boutique lender with the unique loan portfolio.
In the fourth quarter, mortgage originations plummeted by 66.8%, to $365 million—one of the steepest declines among all lenders. Cash from operating activities dropped into the red in the third quarter (the most recent data available), falling from $49 million in 2005 to negative $77.1 million a year later. Meanwhile, the number of problem loans more than quadrupled last year.
FirstFed's foundation could crack even further. The biggest problem: Its mortgage portfolio is packed with risky loans known as option ARMS. These adjustable-rate mortgages allow borrowers to make smaller monthly payments than they would normally owe by deferring the principal and adding the difference back to the balance. That may make a house more affordable at first.
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