Mortgage Instability Drives Margin Compression at National City

Reuters reports on an recent SEC filing by National City Corp., which said the nation’s 8th-largest bank saw its net interest margin fall (3.63 percent in April and May, compared to 3.69 percent in the first quarter) due in part to continued instability in its mortgage business.

National City said declines in nonconforming mortgage and home equity run-off portfolios offset growth in its core loan portfolio. Second-quarter net interest income should fall slightly from the first quarter’s $1.11 billion, it said. Cleveland-based National City also said market conditions have pushed gain-on-sale margins at its National City Mortgage unit down to 0.43 percent in April and May from 0.75 percent in the first quarter. Separately, National City said it is resolving claims with the unnamed insurance carrier related to a portfolio of second mortgages, valued at $1.9 billion on May 31, from its former First Franklin Financial Corp. subprime unit.

Anyone know who the insurer is here? MBIA? PMI? I’m not sure who is/was providing the mortgage insurance for First Franklin loans, but apparently the carrier was rejecting claims for borrower defaults on those loans — a great way to prop up the insurer’s balance sheet, sure, but also a great way to drag down whomever is left holding the bag. First Franklin also warned that it expects to see further margin compression in its second quarter results, suggesting that the impact of soft mortgage markets may not yet be waning as some have suggested.

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