Luminent Mortgage Posts Loss
And Disputes Lender Allegation
by Kathy Shwiff
From The Wall Street Journal Online
December 31, 2007
Luminent Mortgage Capital Inc., which invests in residential mortgage securities, is disputing a lender's allegation that Luminent is in default of a master repurchase agreement.
According to a filing with the Securities and Exchange Commission, a lender on Dec. 21 demanded payment of $8 million plus interest and expenses related to reverse-repurchase transactions. Luminent sued, seeking to rescind the sale of most of the securities subject to the transactions, saying an agent of the repo lender sold them to Luminent in violation of federal and state securities laws.
"The lawsuit alleges that the defendants misrepresented, and failed to disclose, material information relating to the securities they offered and sold to the company and an affiliate, entitling the company and an affiliate to rescission and/or monetary damages," according to the filing.
Luminent, which is moving from San Francisco to Philadelphia, also filed its third-quarter earnings results late because it changed its accountant to Grant Thornton, which needed more time to prepare the report.
In the quarter ended Sept. 30, Luminent reported a net loss of $520.6 million, or $12.17 a share, compared with a net loss of $6.6 million, or 17 cents a share, a year earlier.
The latest results included $268.9 million in impairment losses on mortgage-backed securities, $138 million in losses on sales of mortgage-backed securities, $46.6 million in the change of fair value of its warrants and $46.5 million in losses on sales of loans held for investment.
Total interest income climbed 41% to $134 million.
Luminent announced Aug. 6, in the middle of the credit crunch spurred by the subprime mortgage crisis, that "a rapid and significant loss of liquidity over a short period of time [had] caused substantial doubt" about its ability to continue as a going concern.
In its filing Thursday, Luminent said it had obtained a revolving credit facility of up to $60 million from Arco Capital Corporation Ltd. in September. This month, the cap was increased to $190 million. Among other steps, the company also said it sold about $1.9 billion of mortgage-backed securities to repay lenders and meet margin calls.
Luminent said it now is focused on stabilizing its investment portfolio in the short term, then returning to profitability.
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