Banks See Value of GSE Preferred Securities Drop
In an indication of how widespread mortgage-related problems spread late last year, even banks that avoided subprime lending are taking charges on mortgage assets, including the preferred securities of Fannie Mae and Freddie Mac.
1st Source Corp. here, parent of 1st Source Bank and First National Bank, Valparaiso, Ind., recorded impairment related to its holdings of the GSEs' preferred securities.
"Going into the month of December we were carrying a gain on these securities which quickly evaporated when Fannie Mae and Freddie Mac went to the markets for additional capital in late November and early December," said 1st Source chairman Christopher Murphy III in the company's earnings release.
"With the turmoil in the financial markets and the concern over any mortgage related business, their new preferred securities had to be issued at higher rates," he said.
"This had the effect of reducing the value of already outstanding preferred securities," the executive said.
The company wrote down the value of its GSE preferred securities by $4.1 million, classifying it as "other than temporary" impairment.
Overall, 1st Source earned net income of $7.83 million in the fourth quarter, down almost 4% from the $8.12 million of net income reported in the fourth quarter of 2006.
For the full year, the company earned $30.54 million, down 22% from $39.3 million posted for 2006. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/