Plaza Home Mortgage Corp. has restated its third-quarter and year-to-date earnings after an examination of servicing purchased from Sandia Mortgage Corp. showed a decline in value.
The Santa Ana, Calif.-based mortgage bank will take a $15.9 million charge in the third quarter because of accelerated amortization of the servicing. Of this $15.9 million charge, about $4.6 million accounts for a decline in value through the end of the third quarter, the company said.
The remaining $11.3 million represents a set-aside to defray expected future runoff.
Plaza, like many other mortgage banks, has been hit hard by loans running off from its servicing portfolio as consumers rush to refinance at lower rates. The company suffered an annualized runoff rate of 33% in the third quarter.
From Gain to Loss
As a result of the writedown, Plaza will show a loss of $4.9 million, or 44 cents a share, and net income for the first three quarters of $1.3 million, or 12 cents a share. Plaza earlier reported a gain of $4.1 million for the third quarter and $10.3 million for the first nine months.
"We're embarrassed by the mistake," said John French chief executive officer. Plaza misstated its earnings, according to Mr. French, because it failed to adequately monitor the servicing portfolio of Sandia Mortgage during the integration of its portfolio with Plaza's. Plaza acquired Sandia Mortgage in June.
An outside audit on Oct. 1 caused Plaza to reexamine the Sandia portfolio and restate earnings. "Almost 90% of the writedown is related to the Sandia loans," said Mr. French.
Under the terms of the purchase of Sandia, Plaza will be compensated, either in cash or in a rebate of shares tendered, for a portion of the runoff. This compensation, however, will not completely cover the erosion in value of the Sandia portfolio in recent months, thus necessitating the writedown, company officials said.