National City Corp. took a $200 million charge in October and November surrounding its mortgage banking operations, saying its mortgage business “continues to be under stress” in a filing Monday with the Securities and Exchange Commission. The Ohio-based bank also said it expects to set aside an additional $700 million in loan loss reserves for the fourth quarter, covering anticipated losses associated with its former First Franklin and Home Equity lending business units. From the filing:

The areas of elevated risk continue to be in the run-off portfolios of First Franklin non-prime mortgages, especially seconds; broker-originated home equity loans and lines of credit associated with the former National Home Equity business; and certain sectors of investment real estate and residential construction. In particular, indirect home equity loans and lines that were transferred to portfolio in the third quarter have shown further deterioration beyond that which was anticipated at the time the September 30 loan loss allowance was established.

National City sold its subprime franchise, First Franklin Mortgage, to Merrill Lynch & Co. in a deal completed earlier this year that saw National City retain much of the loans originated by First Franklin prior to the sale. Since that time, the bank has been dealing with escalating losses (see coverage from September here). The $200 million charge came as the bank cleared the majority of its existing warehouse lines during the past two months, either settling existing trades or transferring some mortgages and home equity lines of credit to its own portfolio. As a result, First Franklin said it expects fourth quarter earnings to be “flat to down slightly” relative to third quarter results. It’s worth noting that commercial loan charge-offs appear to have accelerated dramatically during November, reaching $17 million during the month — commercial charge-offs stood at $13 million in October and just $9 million one year earlier. Bloomberg reported treasurer Thomas Richlovsky’s assertion that National City isn’t seeing “anything unusual” in its commercial portfolios, in spite of the increase. Delinquencies in National City’s nonconforming portfolio — a vestige from First Franklin and currently in run-off — registered 27.23 percent in November, up from 18.98 percent one year earlier, according to the SEC filing. For more information, visit http://www.nationalcity.com.