Like many Canadian lenders,Xceed Xceed mortgage has been in a credit whirlpool the past six months.  The former subprime-turned-prime lender earned just $1.5 million last quarter, down from $6.8 million a year prior.

More surprisingly, Xceed’s funded mortgages plummeted from $340.0 million to $65.7 million in that same timeframe.

From what we can see, Xceed is weathering the subprime storm as best they can and we wish them well.  However, the Toronto Star writes that a quick turnaround isn’t likely.

Here are some key notes from Xceed’s latest earnings report:

  • According to CEO Ivan Wahl, “The capital markets turmoil that began last summer has proven more severe and protracted than most anticipated. It was hoped that a greater level of stability and normalcy would have returned to the markets by now or at least clearly be on the horizon. This, however, is not the case and the financial condition of Xceed’s business, as well as our financial results and operations have been, and continue to be, materially and adversely affected by ongoing market disruption.”
  • Xceed has cut back on its lending and “may decide to curtail originations further in order to preserve capital resources.”
  • Xceed “has made concerted efforts to shift its origination efforts away from non-conforming mortgages.”  More specifically, Xceed’s “management has decided to accept only business that meets the underwriting guidelines of mortgage insurers,” says Mr. Wahl.  As of this earnings report, the vast majority of mortgages in Xceed’s pipeline were insured deals.
  • Unlike some of its non-insured/subprime mortgage business from last year, Xceed’s current insured business entails no lender/application fees and has much lower margins.
  • Xceed’s default ratio (mortgages 90+ days in arrears) was 3.33% in the first quarter, versus 2.49% a year prior.  The company says this is “due to the aging of the portfolio, since defaults are less likely to occur in the early stages of a mortgage term.”
  • Xceed’s average loan-to-value is ~84% (based on mortgages it has already securitized).