Irvine-based subprime lender ECC Capital Corp. on Thursday reported third-quarter income of $24 million, fueled by a gain in the value of its derivative investments.
Excluding the derivative gains, ECC Capital lost about $15 million in the quarter. The loss includes a provision for losses related to Hurricane Katrina of $8.8 million.
“ECC Capital holds approximately $21.2 million in loans secured by homes in FEMA-identified affected zip codes,” the company said in a statement. “ECC Capital is continuing to analyze its exposure to potential losses as a result of recent natural disasters.”
ECC Capital said rising interest rates have increased the value of its interest-rate-related derivatives. Like other mortgage lenders, ECC Capital hedges against the risk of rising interest rates.
On the whole, lenders have seen profits squeezed by the narrowing spread between short and long-term rates. That’s because they borrow at short-term rates, which have been rising, and lend money based on long-term rates, which are rising more slowly.
