Mortgage - Home Loan, Commercial Loan

By Mark Jewell, AP Business Writer | October 15, 2007

BOSTON –U.S. housing prices will continue to decline at least through the end of next year and may not begin creeping upward again until 2010, executives from the nation’s biggest mortgage financiers said Monday.

Officials with government-sponsored mortgage companies Fannie Mae and Freddie Mac and CEOs from two major mortgage banks told the Mortgage Bankers Association’s annual convention that the continuing spike in foreclosures and a glut of unsold homes will prevent any quick price rebound.

“It’s going to be a long time before we see it bottom out and recover,” said David Lowman, chief executive of JPMorgan Chase & Co.’s Global Mortgage unit. “There’s too much inventory already in the marketplace.”

Lowman and the three other participants in a round-table session before most of the convention’s 4,000 participants differed slightly on the size of price declines still upcoming, but they agreed no price recovery is likely until at least 2009.

“I think this year we will see a 2 percent decline in national home prices, and we’re projecting about a 4 percent decline next year,” said Thomas Lund, an executive vice president at Fannie Mae.

Prices will likely flatten out in 2009, Lund said, before gradually rising.

Lowman said it might be 2010 before the price decline ends.

In certain coastal markets where speculative investing drove up prices rapidly early this decade, the price correction “could be quite severe,” said Paul Bibb, CEO of National City Mortgage.

In Midwestern housing markets heavily hit by job losses, “the softness in those markets is going continue to depress home prices,” Bibb said.

Patricia Cook, chief business officer of Freddie Mac, the nation’s No. 2 buyer and guarantor of home loans behind Fannie Mae, said investors in mortgage-backed securities likely will remain wary of committing more money to the cash-hungry market until they see a slowing in foreclosures. But that’s unlikely in the short-term, since many at-risk homeowners will see their adjustable mortgages reset to higher interest rates in coming months and years.

The Federal Deposit Insurance Corp. estimates 2.5 million mortgages made to borrowers with weak credit will reset at sharply higher rates by the end of 2008.

“Until we see that, I think it’s going to be hard for investors to come back in a meaningful way,” Cook said. “We’re probably in for a reasonable period of time that we’ll see continued slowing” in the housing investment market.

Cook and Fannie Mae’s Lund expressed support for legislation that aims to infuse more cash into the market and give lenders more leeway to help at-risk homeowners refinance. Some lawmakers, mostly Democrats, have been pressing regulators to allow Freddie and Fannie to increase their holdings of mortgage debt.

However, the federal regulator of Fannie and Freddie has declined to increase their investment caps, and the White House has said it opposes raising them until supervision of the two is tightened.

Higher investment caps could restore investor confidence that’s now lacking, Lund said.

Lowman and Bibb agreed but suggested such expanded authority should be temporary.

“We are in crisis, so we support temporary measures,” Lowman said.

LONDON (Reuters) - Northern Rock’s top executives will face a grilling from parliamentarians on Tuesday, a month after the global credit crunch first forced the mortgage lender to turn to the Bank of England for funding help.

The bank, whose market value has dropped more than 60 percent since the start of the crisis, is now assessing options including a sale, a break-up and closing to new business.

The following are key dates in the bank’s troubles.

June 27 - The bank issues a profit warning, cutting its 2007 profit growth forecast to 15 percent from an expected 17 percent on the back of higher funding costs after interest rate rises.

July 25 - Northern Rock reports interim profit numbers. It repeats warnings on 2007 profit, but says it continues to lend aggressively, taking an almost 19 percent share of first-half net mortgage lending — more than double its typical 8 percent.

Aug 9 - The date pinpointed by regulators and the bank itself as the date the “world changed” for Northern Rock.

The European Central Bank pumps a record 94.8 billion euros into Europe’s money markets after BNP Paribas freezes withdrawals on three funds hit by U.S. subprime market turmoil.

Aug 15 - Northern Rock shares fall to a 3-year low on growing concerns that credit market turmoil could hit its funding costs and scupper planned asset sales, prompting market speculation of a fresh profit warning.

The bank says it continues to raise funds and says conditions are easing.

Aug 20 - The bank sells 465 million pounds of commercial loans, only part of the loans earmarked for sale in June.

Aug 23 - A $2 billion move to shore up finances at U.S. lender Countrywide helps revive confidence in Northern Rock and other UK lenders.

Sept 14 - Northern Rock says the Bank of England has stepped in to provide support, triggering panic among customers and the first run on a major UK bank in over a century — despite reassurances from regulators the lender is not bust.

The bank’s shares crash over 30 percent.

Sept 15 - Customers besiege the bank, ignoring official reassurance and news it has not drawn down any of the money from the Bank of England facility.

Sept 16 - Northern Rock’s chief executive, Adam Applegarth, tells customers their savings are safe, as fears mount that a run on withdrawals will exacerbate funding problems.

Sept 17 - The government steps in, guaranteeing deposits at Northern Rock in a bid to stop the run on deposits.

Worries spread to Alliance & Leicester, which plunges over 30 percent after a rumour it had sought Bank of England assistance. The lender denied the market talk.

Sept 18 - The Bank of England pumps an emergency 4.4 billion pounds into money markets to bring down overnight interest rates, lifted by the Northern Rock crisis.

Northern Rock says separately the “tide has turned” after the government pledge on deposits eases a run on the bank.

Sept 20 - Shares tumble over 30 percent to hit a fresh record low on renewed concerns that a suitor may not materialise to pull Northern Rock back from the brink.

Bank of England Governor Mervyn King defends himself against accusations he was “asleep at the wheel” and blames UK regulation for preventing a covert rescue operation.

Sept 25 - Under pressure from the Treasury and regulators, Northern Rock cancels its interim dividend. It also confirms it is in “preliminary discussions with selected parties”.

Sept 26 - The head of Britain’s top business lobby group brands the UK regulatory system a failure, likening the run on the bank to something from a “banana republic”.

Oct 3 - U.S. buyout firms JC Flowers and Cerberus are in talks with Northern Rock’s advisers, according to sources familiar with the matter. One of the sources says Flowers has secured more than 15 billion pounds of funding to use in a takeover.

Oct 9 - Northern Rock gets another lifeline as the government offers to guarantee new retail deposits and extend funding arrangements to give the bank more time.

Oct 10 - Northern Rock shares jump over 40 percent after a regulatory filing shows SRM Global, the hedge fund run by former UBS trader Jon Wood, takes an interest of over 4 percent.

Oct 12 - Billionaire Richard Branson says he wants to rescue Northern Rock as head of a consortium that would inject cash and stabilise the bank’s finances.

By Rich Brooks and Constance Mitchell Ford
The Wall Street Journal

As America’s mortgage markets began unraveling this year, economists seeking explanations pointed to “subprime” mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

High-rate mortgages accounted for 29 percent of the total number of home loans originated last year, up from 16 percent in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages.

To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.

Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations.

The Journal’s findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system — and now are bringing deepening woe.

The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish.

“We had an aggressive home-mortgage industry trying to get people into homes they couldn’t afford at a time when home prices were very high. It turned out to be a house of cards,” says Karl Case, an economics professor at Wellesley College. “We’re in the early stages of the cleanup.”

The Journal’s analysis indicates that some major subprime lenders, such as Washington Mutual Inc.’s Long Beach Mortgage unit, began scaling back or tightening their standards a year or more ago. But commercial banks and thrifts filled the void, helping to sustain real-estate markets that might otherwise have begun cooling.

The data suggest that financial suffering is likely to persist in many parts of the United States where subprime lending had surged. Many loans at risk of going bad have not yet done so. As much as $600 billion of adjustable-rate subprime loans, for example, are due to adjust to higher rates by the end of 2008, which means that more and more borrowers are likely to fall behind.

Last September, Darla Ball, a printer and copier saleswoman, purchased a $460,000 home in Las Vegas using an adjustable-rate subprime loan with an initial rate of 8.2 percent. At the time, she says, she expected to refinance before her interest rate resets to 14 percent next year, which will raise her monthly payments to $8,000 from $3,700. But in the past year, she says, prices of comparable homes in her subdivision have fallen to $310,000, which means she would not qualify for a new $460,000 mortgage, unless home values go back up to that level, an unlikely scenario. She says she has stopped paying her mortgage and is trying to negotiate with her lender. “I’m going to lose my home anyway,” she says, “so why pay?”

Fort Myers, Fla., is known for its boulevard lined with palm trees, bankrolled years ago by its most famous snowbird, inventor Thomas Edison. These days, the city is fast earning a reputation as an example of the deepening U.S. mortgage crisis. The area’s median sales price for existing homes is down 22 percent since December 2005. Foreclosures are running at an all-time high. And there is no end in sight.

Between 2004 and 2006, more than $8.5 billion in high-rate mortgages were made in the Cape Coral-Fort Myers metropolitan area. The loans encouraged borrowers to stretch more than ever, which helped inflate real-estate values. Two of every five home loans made in the area last year carried high rates, more than twice the 2004 rate.

The Journal compared the fastest-growing high-rate loan markets to the rankings compiled by foreclosure-listing providers RealtyTrac Inc. and Foreclosures.com. In Stockton, Calif., for example, high-rate loans accounted for 33 percent of total home-loan volume last year, up from 13 percent in 2004. During the first half of this year, the Stockton area had 8,169 foreclosure filings, or one for every 27 households. According to RealtyTrac, of Irvine, Calif., that makes Stockton the nation’s foreclosure capital.

Seven of the 10 large metro areas now struggling with the highest foreclosure rates — including Miami, Detroit and Las Vegas — saw borrowers barrel into high-rate loans much faster than the country as a whole. In a forthcoming study in the Journal of the American Planning Association, Daniel Immergluck, an associate professor at Georgia Institute of Technology in Atlanta, found a similar pattern between foreclosures occurring in early 2006 and cities with high subprime lending in 2003.

There are some less gloomy signs, too. Last year, the number of new high-rate loans fell 2 percent to about 4 million, after jumping 88 percent in 2005. That reflects the collapse of some of the most aggressive lenders and tightening credit standards of others. Slowing home sales have put the brakes on loan demand, and borrowers have grown more wary of mortgages with teaser rates and other gimmicks. Yet last year’s data show that even as the housing market was weakening, some lenders still were eager to make riskier loans. Banks and thrifts grabbed 52 percent of the market for high-rate loans last year, up from 44 percent in 2005. SunTrust Banks Inc., of Atlanta, long known as a conservative lender, more than doubled the number of high-rate loans made by its mortgage unit. Smaller banks such as First National Bank of Arizona, part of First National Bank Holding Co. of Scottsdale, Ariz., also revved up their riskier mortgage lending last year.

Joel Gottesman, chairman of First National’s mortgage division, says much of the jump reflects borrowers who got second mortgages. The bank has since scaled back that business, he says. SunTrust’s increase reflects that it “was comparatively late getting into this area,” says a spokesman. He added that the jump was heightened by changes in interest rates.

Higher-income home buyers began using such loans for larger purchases. Among borrowers characterized in the data as white with annual income of at least $300,000, the number of high-rate loans jumped 74 percent last year, the numbers show. The average high-rate loan grew 10 percent to $158,000 last year, compared with a 1 percent rise in the average size of all home loans. The 2006 data include records from 8,886 lenders nationwide, which generate an estimated 80 percent of U.S. home mortgages.

The high-rate loan data likely understate the potential peril posed by mortgages with low teaser rates. Under federal rules governing disclosure, some subprime teaser loans do not show up as having high rates. Lenders weren’t required to report loan-pricing details until 2004.

The relaxation of credit standards by home lenders has been years in the making. The Community Reinvestment Act, a 1977 federal law, prodded banks to extend more credit in communities where they operated. That warmed many of them to lower-income and minority borrowers. The Federal Housing Administration, a New Deal-era mortgage insurer targeting buyers with little or poor credit, began losing market share to aggressive subprime lenders. These commercial lenders usually charged higher interest rates but promised less paperwork, faster approval and no-money-down loans that seemed more affordable to many borrowers.

Ambitious lenders such as Seattle-based Washington Mutual’s Long Beach Mortgage, which between 2004 and 2006 made $48 billion in high-rate loans, used armies of outside brokers to push subprime loans into the suburbs. (A company slogan: “The Power of Yes.”) The result was a mortgage bonanza that reached every racial and ethnic group, income level and geographic area.

By 2005, a list of subprime-lending specialists compiled by the Department of Housing and Urban Development had grown to 210 lenders, from 141 in 1996. Their combined loan volume grew tenfold during the same period.

“Old industrial cities like Philadelphia have a poverty problem, and that’s why people had to use subprime loans,” says Kevin Gillen, a research fellow at the Wharton School of University of Pennsylvania. But in pricey areas such as Miami, where the high-rate market share jumped 25 percentage points from 2004 to 2006, subprime loans didn’t have a downscale reputation. They were seen as the answer to sky-high housing costs. “They are different groups, but subprime served both of them,” Mr. Gillen says.

It used to be that high-rate borrowers weren’t allowed to stretch as much as conventional borrowers on loan amounts, a reflection of their higher credit risk. But as home prices rose throughout the U.S. in the early 2000s, lenders grew more willing to let high-rate borrowers get bigger loans as measured against their annual incomes. In 2005, borrowers who got high-rate mortgages to buy one- to four-family homes were loaned 2.1 times their reported annual income, on average, according to the data. That was 4 percent higher than regular borrowers.

Kristine McMahon has a six-figure income as a mortgage broker and lives in a four-bedroom home in East Hampton, N.Y., valued at more than $2.7 million. Yet Ms. McMahon, who works for Manhattan Mortgage, chose a subprime loan for herself when she refinanced last year to turn some of her home equity into cash. Ms. McMahon says that at the time of the refinancing, a conventional lender would not allow her to take out as much cash during the refinancing as her subprime lender, New Century Financial Corp., which is now operating under bankruptcy-court protection. Ms. McMahon chose a subprime loan that carried a fixed-rate of 6.45 percent for the first two years before turning into an adjustable rate. She plans to sell the house before the higher adjustable rates kick in.

Lenders also extended more “second-lien” mortgages — many of them “piggyback” second loans that borrowers used to cover down payments. Such second-lien loans climbed to 22 percent of all mortgages last year, up from 12 percent in 2004. Piggybacks are considered far more likely to default than a standard mortgage.

Lenders did little to discourage speculation by real-estate investors, which contributed to rising home prices. Last year, 13 percent of all high-rate home loans were for properties not occupied by owners, up from about 9 percent in 2004, the data show. Experts say such properties are higher foreclosure risks than homes lived in by their owners.

Who will be left holding the bag for mortgages that go sour? Wall Street bought lots of subprime loans and packaged them into securities for sale to investors. The data show that lenders shifted even more of their riskiest loans to investors as the boom began to fizzle.

About 63 percent of high-rate mortgages originated in 2004 were sold that same year, compared with 68 percent of all home loans, the data indicate. Last year, about 73 percent of new high-rate loans were sold, compared with 67 percent of all home loans. Last year, the average high-rate loan carried an interest rate that was 5.6 percentage points higher than a Treasury security of comparable maturity — up from 5.3 points in 2005 and 4.8 points in 2004.

In the hardest-hit areas, the numbers could batter borrowers, lenders and builders for years to come. This year, through July, the rate of mortgage-default and foreclosure-auction filings in Lee County, Fla., where Fort Myers is located, was second-highest in the U.S., according to Foreclosures.com. The inventory of unsold homes has swelled to about 15,000, and some investors who had hoped to flip houses at a profit are walking away from sales contracts for purchases they don’t want anymore or can’t afford.

“We view Fort Myers as likely the worst housing market in the country,” J. Larry Sorsby, executive vice president and chief financial officer of Hovnanian Enterprises Inc., complained last month. In March, the Red Bank, N.J., company took a $93 million pretax charge because of the mess in Fort Myers. Last month, it slashed prices on certain homes there as part of a three-day, nationwide “Deal of the Century” sale.

Next week, foreclosure auctioneer Hudson & Marshall of Texas Inc. will try to unload about 70 houses in or near Fort Myers that were taken back by lenders. Low-ball bidders who miss out will have plenty of second chances: More than 300 other foreclosed homes in Florida are for sale in the auction.

BY ROCCO PARASCANDOLA | rocco.parascandola@newsday.com; Staff writer Bill M

Two mortgage company employees were arrested yesterday for their role in a multimillion-dollar mortgage and identity theft scam in Queens and Long Island, police sources said.

Arrests, the sources said, are likely to continue, with police and prosecutors expected to allege that hundreds of homes were purchased under false pretenses, with many victims facing potential financial ruin because their personal information had been stolen and used to buy several homes.

One victim, a $30,000-a-year waiter, was stunned to find out he owned three homes and owed $1.3 million in mortgages for which he never applied, sources said.

Police know of two dozen victims so far, but the sources said more are likely to come forward.

“What we have right now is just the tip of the iceberg,” said Herd Waichman, whose Great Neck firm, Parker, Waichman, Alonso LLP., has interviewed a number of people who claim to have been ripped off. “It’s not a pretty picture.”

Most of the known victims are from Jackson Heights. One is from the Bronx, and Nassau and Suffolk residents were also victimized. The FBI is also investigating, the sources said.

At the center of the probe is Griffin Mortgage Co., with offices in Jackson Heights, Jamaica and Garden City. Officials with the company could not be reached.

Griffin director and business manager, Jacob Milton, 41, is a Bangladeshi immigrant who has a cable talk show. On the wall of the Jackson Heights office are several pictures of him with Sen. Hillary Rodham Clinton and President Bill Clinton.

Milton was arrested yesterday at the Queens courthouse, where he had appeared in a pending case, separate from the current investigation, in which he is accused of threatening a client who had filed a lawsuit against him.

Milton, of Port Washington, said nothing to police, according to Lt. Richard Rudolph of the 115th Precinct detective squad. His sister, Nira Niru, who is 38 and lives with him, was also arrested. She works as a secretary at Griffin Mortgage.

Both face charges of grand larceny, identity theft and scheme to defraud.

According to Rudolph, the case dates to July, when six people showed up at the precinct station house to complain that someone had opened up a Home Depot account in their name.

The subsequent investigation uncovered a common thread - all six victims had applied for mortgages at Griffin, Rudolph said.

By early last night, Rudolph said, three police vans had been filled with documents and about 10 computers that were seized from Griffin’s Jackson Heights office, plus residences that Milton owns on Denman Street in Elmhurst and on Fifth Street in Deer Park.

One victim, Mohammed Golam, 42, of Cypress Hills, said he “trusted Milton like a brother,” but that Milton scammed him, first by getting him a mortgage nearly $100,000 more than he was supposed to buy the house for, then by arranging for a refinancing in which Milton kept $40,000 of the money.

“I have a house, but I have trouble,” said Golam. “I pay my mortgage, then I buy food. But I have no money for anything else. Sometimes I don’t even have money for food.”

Meanwhile Suffolk police arrested Noor Mohammed, 44, who lives at the 8 North 5th St., Deer Park, charging him with second-degree grand larceny.

Det. Sgt. Stephen Jensen, commanding officer of the Suffolk identity theft unit, said Mohammed was involved in an Internet fraudulent stock scheme aimed at netting about $100,000. Jensen said the Suffolk investigation is ongoing.

Citigroup (NYSE:C), Bank of America (NYSE:BAC) and JPMorganon Monday announced plans for a fund to buy mortgage-linked securities in an attempt to allay fears of a downward price-spiral that would hit the balance sheets of big banks.

A person familiar with the discussions said that US banks collectively were expected to put up credit guarantees worth about $75bn for the fund, named the single Master Liquidity Enhancement Conduit (MLEC).

The three banks said that they and “several other financial institutions” had reached “an agreement in principle” on the fund, but that the size of the fund was yet to be determined, in a statement released on Monday morning. The fund could be up and running within 90 days, the banks said.

But bankers said the scheme would evolve with the market and may only be as large as demand requires. The MLEC would be temporary and capped in value, and would not be backed by any state guarantee.

The concept of an MLEC first emerged three weeks ago when the US Treasury summoned leading bankers to discuss ways of reviving the mortgage-linked securities market and dealing with the threat posed by structured investment vehicles (SIVs) and conduits.

The Treasury acted as a neutral “third party” in the discussions, and Hank Paulson,Treasury secretary, was strongly in support of the initiative.

Robert Steel, under-secretary for domestic finance, led the US Treasury side of the discussions, with the day-to-day work handled by Anthony Ryan, assistant secretary. The plan is an attempt to address concerns about SIVs and conduits, vehicles that are often off-balance sheet but closely affiliated to banks.

They typically fund themselves in the short-term asset-backed commercial paper market but purchase long-term securities. The gap between short-term debts and long-term assets has created a vicious funding mismatch in recent weeks because investors have stopped buying notes issued by some SIVs and conduits. There are fears some SIVs may be pushed into forced sales, prompting further declines in the price of mortgage-linked securities that could hurt the balance sheets of some institutions.

“Recently, refinancing in the asset-backed commercial paper markets has been difficult despite the high quality collateral underlying many of these securities,” the banks. “The objective of MLEC is to facilitate these refinancings and to complement other market-based solutions in supporting an orderly and efficient market environment.”

The banks said that they were endowing the fund with certain features, including a cushion of support from junior layers of capital and liquidity backstops, intended to improve the attractiveness of the credit instruments it issues in order to fund the purchase of mortgage-backed securities. “The size of the vehicle, the scope of the liquidity backstops, and the underlying cushion of capital are intended to enhance the liquidity and marketability of the short-term obligations of MLEC”, the banks said.

MLEC is likely to be unpopular with some banks which have already started trading in distressed subprime securities at knockdown prices.

One banker said last week: “The banks have varied enormously in terms of how much they have marked down their books - of course there are some that want to avoid the big write-downs.”

MLEC would operate as a restructuring factory, repackaging credit securities to make them more transparent than existing commercial paper and more attractive to investors. It would only deal in “highly-rated” assets.

Although it is envisaged that the scheme will initially focus on vehicles in the dollar market, it is likely to be extended to European banks as well, and may even be extended to the euro market. The US Treasury declined to provide an official comment on the reports.

NEW YORK (AFP) - Mortgage woes and big loan write-downs took a dramatic toll on Citigroup’s third quarter profits, but America’s largest banking group on Monday still reported a net profit of 2.4 billion dollars.

Citigroup said its earnings per share plummeted to 47 cents compared with 1.10 dollars during the same period of 2006. Top executives had warned earlier this month that quarterly profits would be harmed by soured mortgage investments.

Most analysts had only expected Citigroup to unveil earnings of 44 cents per share, but a profitable sale of shares in Brazilian finance firm Redecard helped offset its ailing mortgage investments.

Overall profit nonetheless declined by 57 percent from the same period a year ago. Revenues rose six percent to 22.7 billion dollars.

“This was a disappointing quarter, even in the context of the dislocations in the subprime mortgage and credit markets,” said Citigroup chairman and chief executive officer Charles Prince.

Citigroup and rival Wall Street banks have seen their earnings ravaged by exposure to sub-prime mortgages, or home loans granted to Americans with patchy credit records. Mounting home foreclosures have played havoc with such mortgages.

Its earnings momentum for the July-September quarter was also blunted by increased credit losses and trading setbacks.

Citigroup revealed pre-tax losses of 1.56 billion dollars from bets it made on mortgage-backed securities and other loan instruments, as well as disclosing pre-tax writedowns of 1.35 billion dollars related to mergers and acquisitions lending agreements.

The financial colossus also said it lost 636 million dollars, pre-tax, from its fixed income trading operations, partly because of the August meltdown in financial markets.

The US credit and banking markets threatened to seize up in August as fears about the trillion-dollar mortgage market deepened, forcing banks to tighten their lending practices.

Investor demand for mortgage-backed securities dried up, sending the US and global stock markets into a tailspin as the Federal Reserve injected tens of billions of dollars into the US financial system to ensure liquidity.

The markets have since recovered, but analysts say the credit markets remain fragile.

The turmoil contributed to an 87 percent decline in Citigroup’s US markets and banking revenues during the quarter which was offset slightly by increased international revenues which grew by seven percent.

Citigroup’s large international footprint helped insulate it somewhat from the storms buffeting its US operations.

The banking giant said it also made a pre-tax gain of 729 million dollars on the sale of shares in Redecard, a Brazilian financial group.

But the credit problems deflated Citigroup’s earnings.

US credit losses, in part related to unsecured personal loans, swelled to 278 million dollars while international credit losses ballooned to 460 million dollars.

And the bank indicated it was setting aside provision for futher loan losses.

“Citigroup is preparing for future credit losses,” Morningstar analyst Ganesh Rathnam said in a research note.

“Credit loss rates are now increasing, and Citigroup must rebuild its loan-loss reserves,” Rathnam said.

One bright spot was Citigroup’s global wealth management business which reported a 41 percent increase in revenues to 3.5 billion dollars.

The volume of assets under fee-based management rose 41 percent to 454 billion dollars.

Citigroup’s quarterly profit of 2.4 billion dollars compared to 5.5 billion dollars during the third quarter of 2006 and a record quarterly profit of 6.2 billion dollars during the second quarter of this year.

Prince expressed optimism that Citigroup’s performance would improve.

“As we move into the fourth quarter, we are focusing closely on improving those areas where we performed below expectation,” he said.

Citigroup’s shares closed down 3.4 percent at 46.24 dollars amid wider market losses.

TOKYO, Oct. 15 (AP) — Nomura Holdings, Japan’s largest securities firm by revenue, said Monday that it would shut its American residential mortgage-backed securities business, the latest casualty of the subprime mortgage crisis.

Nomura said in a statement that it would book a 73 billion yen ($621 million) loss in its residential mortgage-backed securities business, and that it expected a group pretax loss of 40 billion to 60 billion yen ($340 million to $510 million) for the July-September quarter.

The company also said it would cut more than 400 jobs in the United States, about 30 percent of its work force there, by March 2008, mostly in its broker-dealer operations and back offices.

The Japanese group has already written off about $620 million related to its American subprime mortgage-related business.

Nomura’s woes follow a string of losses at major American and European banks from exposure to risky loans made to individuals with poor credit histories.

Mortgage-backed securities are created by bundling together these home loans and repackaging them as securities that can be bought and sold.

Standard & Poor’s said its rating on the Nomura group would not be affected by the loss, citing its generally solid performance in other segments like domestic operations.

The number of borrowers rejected by mortgage lenders has leapt in the past six months as it has become more difficult for financially insecure house buyers to borrow.

More than 738,000 applicants have been turned down by mortgage companies, a rise of almost 60 per cent since March, according to financial information provider MoneyExpert.com.

The company said the figures reflected the flight to safety by many lenders following difficulties for banks to borrow or securitise their debt, as well as two interest rate rises since May.

Some lenders are now less willing to provide money to riskier borrowers and first-time buyers, who typically need to borrow more with fewer guarantees.

Subprime mortgage specialist Edeus believes the tightening of criteria by lenders has reduced the size of the mortgage market by more than £50bn.

“All lenders, especially those that securitise their debt, are looking after their balance sheets and being choosier about who to lend to,” said Alan Cleary, managing director at Edeus.

“We think this market is going to drive customers away, and shrink from the £350bn of gross advances last year to about £300bn.”

Almost all lenders in the riskier parts of the market - including buy-to-let - have now changed their loan-to-value ratios, raised rates and reduced overall loan sizes, although this is far less pronounced in the mainstream mortgage market.

The survey showed that first-time buyers were at a particular disadvantage, with around 382,000 people under 35 having had an application turned down.

The Council of Mortgage Lenders said last week affordability levels had worsened, with first-time buyers now typically borrowing 3.38 times their income.

Figures released on Monday by moneysupermarket.com suggest the number of first-time buyers has dropped 20 per cent since March.

The TNS poll for MoneyExpert.com surveyed more than 1,000 people.

LONDON: Several hundreds of thousands of people, who had made mortgage applications in the U.K. had been denied mortgages in the last six months mainly on account of increased interest rates, according to research by an independent financial website.

MoneyExpert.com, which compiled the figures based on research, said the number of rejected applications increased by 60 per cent during the last six months. A total of 738,000 home loan applications were rejected by lenders during the period, compared with some 463,000 such applications during the previous six-month period, the website said.

MoneyExpert.com said several reasons including higher interest rates and higher lending criteria adopted by funding organizations have contributed to this situation. The five rate revisions since August 2006, it said, have led to increased repayments. Young borrowers — those in the age group of 25-34 — were specially affected by this situation and around 5 per cent of people in this age bracket faced rejection of their applications.

MoneyExpert.com’s chief executive Sean Gardner said the environment at present is very stringent and applicants should be prepared for rejection. He, however, said the rise to some extent appeared to be seasonal as summer is the peak time for mortgage applications.

Several economists have said lending conditions are expected to become tighter now as a result of the credit crunch prevailing globally and the sub-prime mortgage crisis in the U.S. Housing loan companies will adopt stricter norms now for lending, they added.

The Council of Mortgage Lenders admitted more number of prospective home loan seekers is likely to be affected by the credit squeeze but said the research figures should be treated with caution.

By Darren Boey and Kazue Somiya

Oct. 16 (Bloomberg) — Asian stocks dropped the most in four weeks after losses reported by Nomura Holdings Inc. and Citigroup Inc. renewed concern a U.S. housing slowdown will stunt earnings growth at financial companies.

Mitsubishi UFJ Financial Group Inc. posted its biggest decline since May last year and National Australia Bank Ltd. slipped to a one-week low. Federal Reserve Chairman Ben S. Bernanke said yesterday the housing slump will be a “significant drag” on U.S. growth into next year.

“Nomura’s announcement of additional losses due to subprime securities shows this is not just limited to the U.S.,” said Terunobu Kinoshita, who helps manage $785 million at Fund Creation Co. in Tokyo.

J. Front Retailing Co., Japan’s largest department store operator, retreated the most since listing on Sept. 3 after reporting operating profit that missed its forecast. HSBC Holdings Plc led Hong Kong’s Hang Seng Index down from a record.

The Morgan Stanley Capital International Asia-Pacific Index fell 1.2 percent to 166.87 at 3:17 p.m. in Tokyo, the most since Sept. 18. Shares tied to the finance industry contributed the most to the drop. The Nikkei 225 Stock Average lost 1.3 percent, while the broader Topix index declined 1.9 percent. All markets slid, except in Taiwan, China, Thailand and Sri Lanka. Indonesia is closed for a holiday.

PetroChina Co., which yesterday surpassed General Electric Co. as the world’s second-largest company by market value, gained on record oil prices. Taiwan’s Asustek Computer Inc. climbed after a newspaper reported the company received orders for a million notebook computers.

Pretax Loss

U.S. stocks yesterday fell the most in five weeks as Citigroup Inc., the largest U.S. bank, warned that subprime mortgages will continue to plague financial markets. The company’s Chief Financial Officer Gary Crittenden said late payments on home loans may worsen in the fourth quarter.

Mitsubishi UFJ, Japan’s biggest publicly traded bank, slid 6 percent to 1,059 yen, its biggest drop since May last year. National Australia, the country’s largest lender, lost 1.3 percent to A$41.27, its lowest since Oct. 8. HSBC Holdings dropped 1.2 percent to HK$150.90 in Hong Kong. The bank, Europe’s largest, made 31 percent of its 2006 revenue in North America.

Nomura, Japan’s largest brokerage, said yesterday it will post its first quarterly pretax loss in more than four years after losing 73 billion yen ($622 million) on U.S. home loans. The pace of the collapse in residential mortgage-backed securities was quicker than expected, Chief Executive Nobuyuki Koga said.

The stock lost 0.5 percent to 2,070 yen after sliding 3.9 percent earlier. Goldman Sachs Group Inc. upgraded its rating on Nomura to “buy” from “neutral.” The risk of additional losses from U.S. residential mortgages is “almost nil,” Tokyo-based analyst Takehito Yamanaka wrote in a report yesterday.

Oil Producers Gain

While credit markets have improved, a full recovery will take time “and we may well see some setbacks,” Bernanke said in a speech to the Economic Club of New York yesterday.

Commonwealth Bank of Australia, the nation’s second largest, fell 0.8 percent to A$58.90. The stock was cut to “neutral” from “buy” at UBS AG, which cited recent stock gains.

“We have a long way to go in terms of recovery from the housing crisis,” said Richard Wallace, who helps manage $138 million at Wallace Funds Management in Sydney. “There are still clouds on the horizon and the market will continue to pull back.”

J. Front Retailing, formed by the merger of Daimaru Inc. and Matsuzakaya Holdings Inc., slumped 9.1 percent to 1,066 yen. The company said yesterday operating profit, or sales minus the cost of goods sold and administrative expenses, for the first half was 4 percent lower than it had forecast.

Money Flow

PetroChina, the country’s largest oil producer, climbed 1 percent to HK$18.96 in Hong Kong, set to close at a record. Inpex Holdings Inc., Japan’s No. 1 oil explorer, gained 2.4 percent to 1.3 million yen. Singapore Petroleum Co., which owns oil fields in Cambodia, Indonesia, Vietnam and Australia, rose 5.5 percent to S$8.60.

Crude oil futures rose 2.9 percent to $86.13 a barrel in New York yesterday, after reaching a record high of $86.71.

“Unquestionably the place to be is in commodity plays right now,” said Hiromichi Tsuyukubo, who helps manage about $800 million at Myojo Asset Management Japan Co. in Tokyo. “The housing market is going to prevent the Fed from raising rates and that will feed into price gains for metals and other commodities as the money starts to flow.”

PetroChina chairman Jiang Jiemin said the company may make its trading debut in Shanghai next month. On Sept. 24 it won regulatory approval to sell as many as 4 billion yuan-denominated so-called A shares.

Asustek, Shipbuilders

Asustek, the world’s largest maker of boards that connect computer parts, climbed 1.3 percent to NT$93.90. The company received orders to make a million notebook computers that cost less than $400 each for retail shops in Taiwan, China and the U.S., the Commercial Times reported today.

Chairman Jonney Shih will hold a press conference after the market closes in Taipei today, according to an Asustek statement.

“Electronic manufacturing is the core strength of Taiwan,” said Phil Chen, who manages $154 million at Grand Cathay Securities Investment Trust Co. in Taipei. “Investors can find great values in those makers.”

South Korea’s Daewoo Shipbuilding & Marine Engineering Co., the world’s third-largest shipyard, rose 7.4 percent to 64,000 won on expectations a backlog of orders will spur earnings growth this quarter. The company yesterday reported third-quarter profit rose to the highest in four years.

Separately, Samsung Heavy Industries Co., the world’s second- largest shipyard, climbed 0.7 percent to 55,100 won. The company said it will build eight vessels worth $1.37 billion, its biggest order this year.