Friday, June 13, 2008

Mortgage firm loses $16.7 million

Xceed Mortgage Corp. has posted a second-quarter loss of $16.7 million as it shifts away from ill-fated subprime mortgages in the wake of the credit crisis, and predicts the rest of the year will show improved results.

We believe that having essentially completed our transition and taken the necessary unusual charges and writedowns, we can expect to return to profitability in the second half of this year.

The Toronto-based company said its loss for the period ended April 30 amounted to 60 cents per share, compared with a year-ago profit of $4.7 million, or 16 cents per share.

Included in the results was a one-time charge of $10.2 million.

Revenues were down sharply to $4.8 million from $15.6 million, due to the shift to providing mortgages eligible for Canada Mortgage and Housing Corp. insurance.

Xceed has been moving away from high-risk uninsurable mortgages, but "in addition to reduced volumes, this new focus also meant lower profit margins for those significantly lower-risk mortgages. Even though we announced some time ago that we were going to stop issuing new uninsured mortgages, we still had a pipeline which was substantially, initially, uninsured mortgages.

During the first half of the company's financial year, the total value of mortgages it funded dropped to $191 million from $621 million in the year-ago period. At the same time, Xceed insured $102.4 million of previously uninsured mortgages.

Wahl said that Xceed now is only dealing with mortgages that qualify for insurance and sale to CMHC's Canada Mortgage Bond program.

Xceed's stock has been ravaged by troubling conditions in the mortgage industry since last summer when Coventree Inc., the largest non-bank arranger of asset-backed commercial paper in Canada, announced in August it was unable to find investors interested in rolling over asset-backed paper as it matured.

Coventree was a main source of funding for Xceed mortgages, and Xceed stock has lost more than 85 per cent of its value, tumbling from a 52-week high of $7.75 to as low as 92 cents. The shares closed up five cents at $1.20 in Toronto yesterday, representing a market value of $33.3 million.

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