Pennsylvania Mortgage Lender Feels the Heat

This year’s bad credit mortgage turmoil has forced a Philadelphia lender to record a loss of $65.6 million on its $3.6 billion portfolio of mortgage-backed securities.

While Alesco Financial executives told investors yesterday that the impairment was expected to be temporary, and an analyst said that it was smaller than anticipated, the loss illustrates how the recent spike in subprime (bad credit mortgage) defaults rippling through the securities markets.

The loss, reported for the quarter ended March 31, reflects a decline in the market value of the mortgage-backed securities, not defaults on specific Pennsylvania mortgage loans.

Alesco said that $15.8 million in bonds were likely to be downgraded by Moody’s, but were not expected to lose their investment grade.

As the bad credit mortgage crisis unfolded on Wall Street, Alesco’s shares fell as much as 32 percent. On the heels of the nation’s subprime-mortgage problems, Alesco is considering a major change in strategy:

Converting from a real estate investment trust to a publicly traded partnership.

As a real estate investment trust, 75 percent of Alesco’s income must come from real estate. Unlike many real estate investment trusts, Alesco invests in securities, such has home mortgages, rather than actual property.

“By changing our corporate structure, we may be able to reduce our need for many of our home loan assets” and shift investments into assets with higher returns, company chairman Daniel G. Cohen said.

Marvin Loh, a research analyst with Oppenheimer & Co. Inc., said “subprime has changed the dynamic” of the mortgage-backed securities market and “definitely had an impact on the decision” by Alesco to explore a partnership.

SOURCE: Philadelphia Inquirer