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FirstMerit Writes Down MH Portfolio.(Brief Article)
FirstMerit will take an accounting charge of $9.7 million, or $6.3 million after taxes, related to its residual interest in manufactured housing loans that have been securitized.
The charge, equal to about $0.07 per diluted share, will be recorded as a "cumulative effect of a change in accounting principles." It reflects the toll taken by higher than expected defaults, loss severity and prepayments on the company's portfolio.
The new value assigned to the assets involved is $13 million.
Terrence Bichsel, chief financial officer, said the company believes the value of the residual interest assets is now properly recorded on the company's balance sheet.
"The non-cash charge does not affect FirstMerit's core operations or its well-capitalized equity position. We continue to see good momentum in all of our businesses and expect to meet our 2001 budget and financial targets."
The assets involved in the write-down involve manufactured housing loans originated between 1996 and 1998. The original loan value was $298 million, which has now been reduced to $191 million.
Mr. Bichsel said that higher than expected default and severity rates caused problems in the manufactured housing industry, not only for his firm but for others as well, as the inventory of homes on the market increased. The high number of repossessed homes for sale plus new homes from manufactured housing producers created something of a glut in the market.
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