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Xceed posts loss, won't accept new mortgages

A for sale sign on a home.

Sarah Dea/The Globe and Mail

Xceed Mortgage Corp. said it would no longer accept new mortgage applications after posting an annual loss of $17.6-million, focusing instead on managing the $1.6-billion of loans already on its books.

The company also said it would replace chief executive officer Ivan Wahl with Michael Jones, who was already the company's president. Mr. Wahl will remain as chairman.

"In view of the current market conditions, we will suspend the origination of insured mortgages through our network of external brokers," Mr. Wahl said. "We will continue to manage our $1.6-billion of mortgage and other assets under administration, and will continue to offer renewals and refinancing through our internal sales group."

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A quarter of the loans on its portfolio, about $400-million, is from the company's foray into subprime lending from 2002 through 2008.

Xceed incurred a residual securitization loss of $1.6-million for 2010, after losing $2.9-million in 2009. The company said the 2010 loss was "largely caused by foreclosure losses crystallized inside the securitization trusts during the year."

The company said that although it was optimistic about 2010 at the beginning of the year, credit markets remained unstable and the company found it difficult finding the credit it needed to finance new mortgages and renewals. Increased competition for mortgage origination also hurt the company, he said.

"As the result of the difficult market conditions, the spreads available on insured mortgage originations through the broker channel have significantly tightened and the company has seen declines in its mortgage volume," he said. "We also have seen a reduction in the number of mortgage aggregators in the market who are willing to purchase mortgages at competitive rates."

The company said it reduced its origination activity in the second half of the year. In the fourth quarter, it originated $51-million in mortgages, down from $93-million in the third quarter.

The origination of mortgages through external brokers totaled $228.4-million in 2010, as compared with $374.2-million in 2009 and contributed negative $1-million in net revenues before expenses in 2010, as compared with a positive $2.7-million in net revenues before expenses in 2009.

"The decision to suspend originating mortgages through external brokers will not result in any further write downs. We expect to take a provision in our 2011 first quarter for some related reductions that we will make in our staffing."

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Saying "2010 didn't turn out as we planned," Mr. Jones said the company had to cancel its plans to become a bank. The company, which competes with banks and other mortgage lenders, also had its legs taken out mid-year when Deutsche Bank announced it was dropping an arrangement that saw the German bank fund XCeed's mortgages. The loans were then insured under the federal government sponsored Canada Mortgage Bond Program.

XCeed then found a backer in another German institution with strong ties to Bay Street. XCeed won backing from Maple Bank, the local arm of Maple Bank GmbH. This 260-employee bank was spun out of independent brokerage house First Marathon a generation back: First Marathon was subsequently sold to National Bank. Maple Bank has offices in Toronto, Frankfurt, Jersey City, London, Milan, and Halifax.

"Our primary focus will be to maximize value for our shareholders by continuing with the orderly exit from the company's legacy portfolio of securitized mortgages with the goal of converting these positions into cash, continuing to service and manage the existing mortgage portfolios to provide refinancing offers to qualifying customers in a manner that will generate an acceptable return to Xceed," Mr .Wahl said.

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