HomeStreet Inc. revealed a small settlement with the Securities and Exchange Commission and said income was disrupted by the mortgage market.
An agreement has been reached in principle between the Seattle-based organization and the SEC’s staff related to a previously disclosed investigation.
That investigation by the federal securities cop was a look at fair value hedge accounting related to certain commercial real estate loans and swaps.
HomeStreet said it is accused of failing to maintain records and accounts for transactions and dispositions in an accurate manner. It also didn’t have sufficient internal record-keeping controls and engaged in practices that allegedly could have had the effect of discouraging contact with the SEC.
The SEC still needs to accept the settlement, HomeStreet’s statement said.
HomeStreet additionally made a disclosure about its mortgage originations.
“During the fourth quarter, the financial markets were impacted by dramatic increases in long-term Treasury rates beginning in November 2016 in reaction to the results of the U.S. presidential election, and an increase in short-term interest rates by the Federal Reserve in December 2016,” the statement said. “Higher interest rates drove lower than forecasted mortgage application volume and interest rate lock commitments of $1.8 billion, and a lower level of ‘pipeline fallout,’ which in turn resulted in a higher volume of mortgage loan closings of $2.5 billion.”
Fourth-quarter production of $2.4 billion had been expected.
HomeStreet previously reported third-quarter 2016 production of $2.6 billion.
Recent changes in volume have negatively impacted earnings since origination revenue is earned in rate-lock commitment and expense is incurred at closing.
“The unexpected and sustained increase in interest rates also resulted in asymmetrical changes in valuation between hedging derivatives and servicing valuations,” HomeStreet explained. “This market dislocation reduced the value of our hedging derivatives to a greater extent than the value of our mortgage-servicing rights increased in the quarter, resulting in lower risk management results.”
The financial institution predicted that it will report earnings of between $1.7 million and $2.3 million for the fourth-quarter 2016. Full-year 2016 earnings are estimated to be between $57.6 million and $58.2 million.
Final numbers will be announced after the market closes on Jan. 23.
“While we are clearly disappointed in this impact of market forces on our mortgage banking results last quarter, we are pleased with our full year mortgage banking results,” HomeStreet Chairman, President and Chief Executive Officer Mark K. Mason said in the report. “Additionally, last year we made significant progress toward our strategic goals and improved profitability in our commercial and consumer banking segment.”
