Impairment Won't Sting Lenders.(Brief Article)

A precipitous decline in mortgage rates spurred heavy refinancing early this year, but after three months of portfolio churning, most lenders have dodged the bullet.

There were exceptions, of course. Fleet Mortgage Corp., which is selling its mortgage servicing division to Washington Mutual, had to take a $225 million after tax loss on that sale.

More typical was the case of Washington Mutual, soon to be the largest mortgage servicer in history because of its deal to buy Fleet Mortgage and its $136 billion servicing portfolio. WaMu reported strong results, despite a $62.8 million impairment charge related to the value of its servicing portfolio - but this impairment was offset by $70.3 million in gains on the sale of securities used to hedge the portfolio.

Washington Mutual valued its $208 billion mortgage servicing portfolio (which excludes loans owned by WaMu) at $3.6 billion as of March 31. The average servicing fee was 46 basis points. Countrywide, servicer of $294 billion of home loans as of February 28 (the end of its fiscal quarter), reported a reversal of fortunes in its earnings statement. During the previous quarter, loan servicing accounted for the vast majority of the company's income. In the most recent quarter, the burden shifted to loan origination as impairment and amortization reduced servicing income.

Countrywide's mortgage assets - mainly its servicing portfolio - accounted for 65% of the company's income in the previous fiscal quarter, but just 1% of the company's $104 million in first-quarter earnings.

Still, first-quarter earnings showed a healthy increase from the $95.4 million Countrywide earned in the previous quarter.

Angelo Mozio, chaiman and CEO of Countrywide, said the decrease in servicing income results primarily from "higher servicing asset amortization and impairment caused by the lower rate environment."