Luminent Mortgage plunges as it grapples with margin calls

Luminent Mortgage plunges as it grapples with margin calls
San Francisco Business Times - 2:47 PM PDT Tuesday, August 7, 2007
San Francisco-based Luminent Mortgage Capital Inc., facing margin calls from lenders, saw its shares drop 75 percent to $1.08 when trading resumed Tuesday.

Trading in the company's shares was halted Aug. 6 after the company disclosed that it canceled its dividend and an earnings call scheduled for Aug 9.

Luminent said Tuesday that it's working diligently to enhance its liquidity and preserve the value of its assets, which consist substantially of high quality mortgages.

The company tried to clarify that it's an investor, not an originator, of residential mortgages, so it doesn't face the risk of having to repurchase mortgages that go bad. That's sent some originators into bankruptcy court.

"While the market disruption and the attendant visibility resulting from the disruption has created for the moment an environment of concern, speculation and in some instances, over-reaction, (Luminent's) business model has a track record of viability and success," the company said in a statement Tuesday.

Luminent pointed out that the bulk of its assets are prime-quality mortgages extended to borrowers with an average credit score of 715 and "moderate" loan to value ratio of 71 percent on average.

The company said it independently validates the property values on each loan it buys, resulting in lower delinquencies than that seen in the prime mortgage market.

The remainder of Luminent's portfolio consists of mortgage-backed securities, often carrying AAA ratings. The company has no subprime first-loss exposure. It's this portion of the portfolio that's likely causing havoc for Luminent (NYSE: LUM) as its creditors write down the value of such securities. As a result, the company has seen " a significant increase in margin calls on its highest quality assets" and tighter lending terms.

In an ominous sign for Luminent, the safe harbor boilerplate -- a common feature of press releases used to fend off litigation -- is about as long as the company's statement issued Tuesday.

Elsewhere amid the mortgage meltdown, the body count continued to climb.

Unable to borrow on credit lines and fund mortgages this week, Atlanta-based HomeBanc Corp. said Tuesday it will exit the mortgage business.

"In light of the extraordinary difficulties that HomeBanc continues to face in the mortgage loan origination market, we feel that it is in the best interests of the company to exit this business so that we can focus on preserving the value of our investment portfolio assets and loan servicing operations," said Kevin Race, HomeBanc president and CEO.

HomeBanc also said it will sell up to five retail loan origination offices in the South to Countrywide Financial Corp. (NYSE: CFC). Terms of that transaction, expected to be completed this week, were not disclosed.