Because of the lower value investors are placing on subprime loans, New York-based real estate investment trust MortgageIT Inc. is in the process of scaling back earlier plans for a "heavy growth strategy" within the subprime lending market.

Glenn Mouridy, MortgageIT's president and chief financial officer, said during the company's 3Q05 earnings conference call last week that while even gain-on-sale margins of pay option ARM products have begun rebounding, subprime margins continue to fall. Gain-on-sale margins for MortgageIT's subprime loans fell to 175 basis points in the third quarter from 227 in the second, he said, while overall gain-on-sale margins for the self-described conforming mortgage lender were 93, down from 114 in the second quarter.

Subprime origination volume for MortgageIT should be flat or lower than third quarter levels, and the company is not anticipating adding to its REIT portfolio during the quarter because of the "current economic environment," the company's CEO Doug Naidus said. The company originated $1.3 billion worth of subprime loans during the third quarter and anticipates between $900 million and $1.2 billion of subprime funding during this quarter, as opposed to its overall $8.5 billion to $9 billion worth of expected fourth quarter loan volume.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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