Altruistica

"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

18 January 2007

CORS Missed and Conversion Lending Nearly Ceased

Condo lender Corus (or Porous) Bankshares (CORS-NYSE) missed last night and warned further about the condo lending opportunity and the real estate outlook in total.

"It should be no surprise that Corus, with a loan portfolio invested almost exclusively in loans to condominium developers, is feeling the effects of the nationwide slowdown in the housing market. Evidence of this slowdown is clear from the 39% decline in our pipeline of Pending Loans as compared to December 31, 2005. However, when analyzing our loan originations, it is important to differentiate between conversion loans and new construction loans. Our origination of construction loans in 2006 totaled $3.3 billion, which was up 24% from the amount of construction loans originated in 2005. Unfortunately, the conversion of apartments to condominiums all but ceased and, as a result, originations of conversion loans dropped dramatically in 2006 to only $546 million. The first quarter of 2006 was the last time we originated a meaningful amount of conversion loans, and we don't anticipate that changing in the near future.

"Aside from the effects on our new loan origination volumes, the slowdown in the housing market is also impacting Corus in terms of credit quality of loans already on our books. We have seen various projects that are experiencing slower sales of condominium units and/or lower prices than the developer or we would like. While construction projects are clearly not immune to the forces of the slowdown, conversion projects are presently displaying more obvious signs of weakness. We currently have two condominium conversion loans where we have discontinued the accrual of interest. While we have had other loans that have displayed signs of weakness, borrowers or their financial backers have been willing to step up to the plate and invest additional dollars, sign financial guarantees or take other actions that ultimately strengthen the loan from our perspective.

Where's the detail, Glick-boy??

"When foreclosure appears to be the best course of action for addressing a problem loan, we will not hesitate to do so. We believe that our loans were underwritten conservatively, leaving room for our loan amounts to increase or the collateral values to decrease and still have the Bank get repaid in full. As a result, we have no intention of agreeing to a workout if a borrower approaches us with the attitude that we should leave him in control of the project and give him all of the upside if the market turns around, but leaves the Bank to take all of the downside risk.

Here's what they said in October:
http://seekingalpha.com/article/18683

"Aside from the effects on our new loan origination volumes, the slowdown in the housing market is also impacting Corus in terms of credit quality of loans already on our books. We have seen various projects that are experiencing slower sales of condominium units and/or lower prices than the developer or we would like. While construction projects are clearly not immune to the forces of the slowdown, conversion projects presently seem to be displaying more obvious signs of weakness. [b]So far, we can report that we have only one condominium conversion loan which is nonaccrual and one additional loan listed as a Potential Problem Loan. However, we have had numerous other loans that have experienced meaningful problems, but in these cases, the borrowers or their financial backers have stepped up to the plate and invested additional dollars, signed financial guarantees or taken other actions that have strengthened the loan from our perspective." (For now.)


Hmmn, I smell a rat here..

"We have yet to experience any situation where we have had to foreclose on a property nor have we incurred any losses, but it would not surprise us if we did. We believe that our loans were underwritten conservatively, leaving room for our loan amounts to increase or the collateral values to decrease and still have the bank get repaid in full. However, we will not hesitate to foreclose if the borrower does not support a loan that is in distress. In general, we would not agree to a work-out if a borrower approaches us with the attitude that we should leave him in control of the project and give him all of the upside if the market turns around, but leaves the bank to take all of the downside risk."

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