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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (15199)	6/11/2004 12:16:41 PM
From: ild	Read Replies (1) \| Respond to of 110194

IMPACT OF HIGHER RATES BEING FELT ACROSS THE MORTGAGE INDUSTRY Add OptionOne to the list companies that have publicly announced that the recent rise in the 10-year rate and a potential mortgage refi burnout will likely apply pressure to future earnings. Recall, Washington Mutual (WM, 2H $41) and New Century Financial (NCEN, NR $46) have already said that they are seeing weaker trends in mortgage originations. Along with reporting weaker than expected earnings this week, H&R Block (NR) (who through its subsidiary, Option One, is the 6th largest subprime mortgage issuer and servicer of mortgage loans) said that it expects lower mortgage operation earnings in the first half of the current fiscal year compared with the year-ago period. The company noted that higher volatility in interest rates would compress margins in the mortgage business in the first and second quarters, but those margins should normalize in the second half of the year. We view this data as further corroboration of our thesis that the mortgage refi boom is fast coming to an end and that companies with large mortgage banking operations will likely face significant earnings pressure (i.e., CFC) as interest rates rise.