While American Residential Mortgage Corp. enjoyed a 68% rise in revenue in the first quarter of this year, the La Jolla, Calif., lender recorded net income 3% lower than in 1993, the company reported Tuesday.

A stalled attempt by American Residential to create a real estate investment trust last March is a major cause of the company's weak earnings.

Overall, the lender earned $6 million in the first quarter of this year on $50.4 million in revenues, according to the company.

But it also reported losses of $12.8 million as a result of"adverse market conditions." The failed REIT, called ARM Mortgage Investment Corp., accounted for $5.4 million of the losses.

Quarterly Statement

The disclosures came in American Residential's Form 10-Q, a quarterly financial statement required by the Securities and Exchange Commission.

Am Res formed ARM Mortgage to buy loans and servicing rights from the mortgage bank.

A lender must keep servicing rights off the books unless they were purchased from another party, according to today's accounting procedures.

The sale of rights enables the seller to recognize a profit immediately.

To launch the REIT, Am Res began holding - or warehousing -- adjustable-rate mortgages that eventually reached $400 million in preparation for the initial public offering. The IPO was shelved in late April, according to American Residential.

At the time, Judith A. Berry, executive vice president and chief financial officer, attributed the cancellation to poor stock market conditions and investor reticence .about increases in interest rates by the 'Federal Reserve.

The aborted REIT left American Residential stuck with heaps of adjustable-rate mortgages sitting in its inventory.

As the loans idle and interest rates climb, the lender has suffered losses. Am Res has already sold some of the loans into the secondary market.

Ms. Berry said she has had trouble selling the loans because prices have been soft, but plans to unload the remaining loans in a few days.

Further Losses Anticipated

As of May 13, Am Res has incurred $1.2 million additional losses on sales of REIT mortgages.

The lender "expects to incur additional losses on other mortgage loans held for sale," according to a statement.

Am Res did not offer any estimate on further losses in its statement.

Besides the soured REIT offering, American Residential has been hit by the same downturn in home loan production afflicting the rest of the industry.

The company announced it would "downsize its operations" in response to its business problems.

The company plans to close branches, and 15% of the staff will be cut.

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