Irvine-based subprime lender ECC Capital Corp. is feeling the squeeze from investors and competitors.
ECC, which goes by its brand name Encore Credit, posted a first-quarter loss before taxes of $9 million, versus a profit of $11.1 million a year earlier, it said Thursday. Revenue fell 28% to $22.7 million.
Wall Street is paying less these days for loans made to people with imperfect credit. Bankers package the loans into bonds for sale. ECC said it sold fewer of its loans in the first quarter, keeping more on its books.
Meanwhile, strong industry competition and rising short-term interest rates also have hit lenders’ profits.
Big players such as Orange-based Ameriquest Capital Corp. are said to be accepting low profit margins on loans to grab market share.
ECC went public in February, raising $400 million.
“During the three months ended March 31, 2005 loan prices offered in the secondary market declined as a result of increasing short-term interest rates and ECC Capital generally obtained lower prices on the type of loans it sold into the secondary market,” the company said in a statement.
Indeed, the Federal Reserve Bank has been raising a key short-term rate for more than a year. The federal funds rate now is 3%.
Meanwhile, long-term rates have remained low. Typically, when the two yields merge, investors buy short-term bonds, which are less risky.
ECC’s loan volume was up 42% to $2.25 billion in the first quarter, versus a year ago. It was down 12% compared to the fourth quarter.
The company funded $43.7 million of retail loans in the first quarter, a 153% jump compared to the end of last year. ECC began making retail loans last year.
The company released its earnings after the market closed. ECC shares fell 5% to $5.25 Thursday, amid downward trading among a variety of mortgage and other interest rate-sensitive companies.
