Magazine article American Banker

Forecast Studded with Caveats

Magazine article American Banker

Forecast Studded with Caveats

Article excerpt

Accredited Home Lenders, the San Diego nonprime specialist, posted first-quarter profits of $1.61 a share, a penny short of the average analyst estimate, and blamed price competition, higher borrowing costs, and lower premiums on whole-loan sales.

And though it reaffirmed its guidance for the year, $7.70 to $8, it did so assuming various improvements -- in rate spread, origination volume and cost, and net premium from whole-loan sales.

Analysts said it was those caveats, combined with the profit disappointment, that sent its share price tumbling more than 4%, to under $53, in morning trading Tuesday.

Alvar Soosaar of Cohen Bros. & Co. in Philadelphia said, "It's been a tough quarter for everybody in the mortgage market, but especially the subprime space, " as whole-loan sales premiums continued to fall because of secondary market concerns about credit quality.

Accredited still relies on whole loan sales for the majority of its earnings, he said.

Bose George, of Keefe, Bruyette & Woods Inc. in New York, said credit spreads "are very tight" now but are unlikely to remain so in the second half. Even if weighted average coupons rise, Mr. George said, "it's hard to see spreads tightening any more.

"The general concern I've heard is Accredited is being optimistic, given that credit spreads are so tight, " he said.

The lender's first-quarter net income rose 14.5% from a year earlier, to $35.8 million.

On a conference call Tuesday, chief executive James Konrath emphasized that Accredited's cost to originate a loan -- a metric it considers "one of the critical drivers to profits" -- fell more than 30 basis points from a year earlier, to 1. …

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