Steve, sorry took so long to post. Returned from spending one year in Kuwait, compliments of the USArmy.
From:
nfi-info.net
If the shorts are right, and the entire mortgage business falls into a severe decline, let's imagine it drops back by ANOTHER 50% from today's levels. If that happens, and NFI's growing branch system loses even more than 50% of its monthly production from every branch to come out with a decline to $250 million per month in new loans from the current $500 +. The portfolio is only paying down about $140 to $150 per month right now, from a base of $7.2 billion. There would have to be some slowdown in the paydown on NFI's portfolio, maybe to $125 per month. That would create a net increase in 2004 of about $125 million per month in the portfolio, or growth to around $9.7 billion — a 1/3rd increase!
One more for good measure: If the existing loans roll off their fixed-rate period and refinancing sucks (roughly 3/4ths are "hybrid" LIBOR ARMs with mostly 2 year and some 3 year fixed-rate periods), then those loans start paying L+585, when they were only swapped to around L+450 to L+500 during the fixed-rate period. The spread goes up!
A final bit of icing on the cake: $5.7 billion of bonds were issued in 2003. There is a provision in those deals to release the LIBOR swaps and caps back to the company if the loans pay off early. If 30% of them do so in 2004, that releases nearly $1.7 billion of hedges with about a year and a half left in them that "lock in" LIBOR at rates ranging from 1.4% to 2.5%, for an average around 2%. If short rates are higher, the new loans coming in will probably be at 8%, 9% or even 10%. That compares with the 7% to 7.5% the "old" loans that paid off were paying. 200 extra basis points for a year on 1.7 billion is $34 million, or around an extra $1.40 per share in pure earnings, on top of whatever the spreads might be at that time... |
