National City Haunted by Credit Concerns From the Past.

Cleveland -- National City Corp. here has recently been downgraded by several equity analysts in the wake of growing concern about a hangover from its days as parent of First Franklin.

While NC has scaled back its involvement in subprime and home-equity lending, a portfolio of loans that were not sold when Merrill Lynch bought First Franklin from NC continues to worry some company observers.

In its annual 10-K filing with the SEC, NC said the credit trends in its "core commercial and consumer portfolios" continue to be stable. But the company's "runoff" portfolios are another matter. NC reported seeing some increase in delinquency and loss rates that it described as being consistent with a decreasing portfolio balance and stress in the housing market from its national home-equity and nonconforming mortgage portfolios.

The company also disclosed that some $2.2 billion in second mortgages is covered under lender-paid mortgage insurance policies written by two different companies, one of which has disputed some claims made by NC. As previously reported by MSN, NC has threatened legal action against the carrier.

NC said it may have to increase its allowance for loan losses as the dispute is resolved, estimating that the allowance may have to be raised by $50 million. It reported having ...