Option ARM Specialist First Fed: Severe Delinquencies Jump 115 Percent During Q1
California-based option ARM specialist FirstFed Financial Corp. (FED) said Friday that a huge increase to loan loss allowances will lead the lender into the red when it reports first quarter earnings next Wednesday. The bank said its total provision for loan losses for Q1 will likely be between $140 million and $160 million, resulting in an after-tax operating loss of between $65 million and $75 million, or $4.75 to $5.50 per share. FirstFed reported earnings of 8.4 million, or $.61 per share, for the fourth quarter of 2007. "Substantially all of the increased provision for loan losses during the first quarter of 2008 relates to the bank's single family portfolio," FirstFed said in a press statement. The bank said it expects to charge-off roughly $28 million in single-family mortgages during the first quarter. The jump in reserves for expected losses likely won't come as a surprise for regular Housing Wire readers -- we'd noted FirstFed's woeful lack of loss reserves during the bank's most recent fourth quarter earnings, and suggested then that the bank would likely need to dramatically increase reserves in the first quarter. Credit quality continues to slide Not surprisingly, delinquencies at FirstFed are strongly centered in NINA (no income/no assets), SISA (stated income/stated assets) and SIVA (stated income/verified assets) mortgages -- more than 85 percent of $667 million worth of delinquent and nonaccual loans fell into one of these categories during the first quarter. Delinquencies (30- 89 days in arrears) and non-accrual loans (90+ days in arrears, also commonly called severe delinquencies) continued their amazing ascent at the bank during Q1. FirstFed said that non-accruals rose to $387.7 million by the end of March, an amazing jump of 115 percent in just one quarter. Delinquencies also rose from $236.7 million in Q4 to $273.2 million in the first quarter, a jump of 15 percent quarter-over-quarter. REO is also seeing a jump, reflecting trending at other larger lenders within the state -- FirstFed said that it started the quarter with 74 properties, and sold 53 of them. Problem is, inflow totaled 143 properties, leaving the California bank with 164 REO on its books to end the quarter. Despite mounting losses, FirstFed said it expects core capital and risk-based capital to remain well over levels considered well-capitalized by regulators -- news that boosted the bank's stock nearly 13 percent in early trading Friday morning. Disclosure: The author held no positions in FED when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.