Declining interest rates and increased prepayments of mortgages will result in a loss for the third quarter and first nine months for Margaretten Financial Corp., the company announced.

Margaretten expects to experience a $35 million expense in the third quarter, associated with amortization of purchased mortgage servicing rights. The company recorded a $13 million rights amortization expense in the second quarter of this year.

In addition, the company has established a $25 million provision against any future losses.

The precipitous decline in interest rates is triggering a further increase in prepayments. Because Margaretten has purchased large amounts of servicing rights, the company is now forced to take a writedown to cover the expected decline in revenues.

"Many consumers will now refinance to save as little as 1% or less on their mortgage instead of the long-standing 2% rule of thumb," said Felix M. Beck, chairman of Margaretten.

Margaretten also announced that it has authorized a stock buyback program for up to two million shares.

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