When Will 'Impairment' Ease?(Brief Article)

A year ago Chase Manhattan Mortgage here valued its $393 billion residential servicing portfolio at just over $7 billion.

Today, Chase, a subsidiary of J.P. Morgan Chase, values its $435 billion portfolio at $5.6 billion - or 19.5% less.

And Chase isn't alone. From the mega-servicer down to the small community lender, the value of housing receivables has been under scrutiny as mortgage executives see their retained servicing portfolios get whipsawed by what seems like a never ending refinancing boom.

When it will stop is anyone's guess, but one thing's for certain - several mega-servicers (Chase, Countrywide, etc.) are finding themselves of being in the odd position of seeing their base of receivables grow while having to reduce the carrying value of the asset.

A new report by MIAC Analytics, New York, notes that "very large segments of the mortgage market are now highly refinanceable" and if mortgage bankers aren't careful in their hedges, "they will suffer significant FAS 140 impairments."

But there is some good news on the horizon. Stock and servicing analysts think that the impairment "boom" should end some time next year - when, exactly, is a different matter. A recent Salomon Smith Barney report on Countrywide Credit Industries, notes that a rising interest rate environment (which is expected next year) is challenging for the company in two ways.

"With mortgage servicing right impairment reserves at their highest level in seven years, management ...