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.