Magazine article American Banker

Prepayment Rush Prompts Fla. Lender to Write Down Servicing Portfolio by $15M

Magazine article American Banker

Prepayment Rush Prompts Fla. Lender to Write Down Servicing Portfolio by $15M

Article excerpt

By HOCHSTEIN, MARC

BankAtlantic Bancorp is the latest mortgage lender to write down its servicing portfolio because of falling interest rates.

The Fort Lauderdale, Fla.-based thrift's $15 million writedown, announced Monday in its third-quarter earnings statement, follows a $250 million accounting adjustment by BankAmerica Corp. on its mortgage servicing assets two weeks ago and a $45 million adjustment by Capstead Mortgage of Dallas in June.

Servicing is the business of collecting payments, mailing statements, and generally administering mortgage loans.

Accounting rules require mortgage bankers to book the servicing rights on loans they originate or acquire according to assumptions about the speed at which the loans will pay off. If those assumptions change, or if actual prepayments are faster than expected, the servicers have to write the assets down.

Mortgage servicing has recently been costing BankAtlantic "as much as $1 million per month in earnings," said Alan Levan, the company's chairman and chief executive officer. "As early as the first quarter, we started to see significant runoff."

The writedown, Mr. Levan said, represents "an attempt to slow up the amortization process that's been on our books. Unless we see a significant pickup in prepayments, it should have the effect of neutralizing these losses going forward, returning the servicing operation back to profitability."

Since 1995 it has been routine for mortgage bankers to protect their portfolios by buying derivative instruments that tend to rise in value when interest rates fall, to offset declines in the value of servicing. …

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