Moody's Investors Service today placed the long-term rating of National City Corp. and its affiliated banking operations on negative ratings watch, citing "credit issues with some of its mortgage portfolios." From the press statement:
"National City's sale of First Franklin in January 2007 was a big positive initiative in reducing National City's exposure to subprime mortgages," said Moody's Senior Vice President, Sean Jones. "However, its remaining exposure to subprime mortgages and the national home-equity market will likely extend the period in which National City's performance will be below average under current adverse conditions," said Mr. Jones ... The remaining subprime exposure National City holds totals $7.4 billion, which will likely need higher provisions. However, the majority of the portfolio is first-lien and was originated prior to 2006. The second-lien portfolio is mostly covered by lender paid mortgage insurance, but one insurer has rejected a number of National City's claims and the issue has not yet been resolved. Moody's said that another portfolio prone to higher credit costs is the bank's national home-equity portfolio and its investment real-estate exposure, totaling approximately $8.2 billion.
Moody's said liquidity was strong and not a concern, and that any downgrade -- if it were to take place -- would not be likely to exceed one notch. Likely part of a strategy to improve performance, as well as the latest proof of what's become of the third-party mortgage market, Morgan Brown over at Blown Mortgage reports that National City today moved to halt all non-agency originations via its sizeable wholesale mortgage channel. It's got to be nerve-wracking to be a mortgage broker in this sort of environment.