Doral Financial Corp. - Mortgage Lender

Update - 2008-12-08: News about Doral Financial Corp. and its primary subsidiary Doral Bank has been mixed over the months since we first listed them. Most recently, Doral Bank's President and CEO Calixto Garcia-Vélez was "deemed to have resigned" as of November 18, 2008 per an 8-K filing with the SEC.

Loan production across retail, wholesale and other channels has steadily increased, jumping "56% to $256.2 million" in the second quarter of 2008, and rising to $318.3 million during the third quarter. As of the quarter ended September 30, 2008, loans secured by U.S. homes accounted for less than 1% of their total servicing portfolio per their latest 10-Q filing. Also reported in the quarter was a $4.2 million charge related to the collapse of Lehman Brothers Inc. (LBI). Doral said it was owed $43.3 million by LBI but unable to determine "the probability of receiving full or partial payment of the amount owed by LBI or to reasonably estimate any loss thereon."

Research Oracle notes, "We remain concerned regarding the bank's near term performance owing to the global financial crisis and ongoing recession in Puerto Rico."

Doral Bank was one of ten banks listed in a BusinessWeek article entitled "Telltales of the Next Likely Bank Failures" with a Texas Ratio of 118.45. "The bank's health is tied to Puerto Rico, which is facing a real estate slump and recession. The company says it has twice the capital required by regulations." Listed immediately after Doral was Franklin Bank with a ratio of 114.50 (which became the 18th bank to fail just a month after the article ran).

On September 17, 2008, Doral Financial Corp announced the FDIC had lifted a Cease & Desist Order issued in February for "Bank Secrecy Act (BSA) compliance in regards to the BSA/Anti Money Laundering Compliance Program." There remains a Memorandum of Understanding between the bank and FDIC for completion of a "Look Back Review" of certain transactions dating back to April 1, 2006.

As for their recapitilization effort, we take this excerpt from their 2007 annual report:

"On July 19, 2007, Doral Financial completed its Recapitalization through, the private sale of 48,412,698 newly issued shares of common stock to Doral Holdings, a newly formed entity in which Bear Stearns Merchant Banking and other investors including funds managed by Marathon Asset Management, Perry Capital, the DE Shaw Group and Tennenbaum Capital invested, for an aggregate purchase price of $610.0 million. Doral Financial also transferred its mortgage servicing and mortgage origination operations to Doral Bank PR, its principal banking subsidiary, contributed its mortgage servicing and related assets to Doral Bank PR in the form of additional equity. On July 26, 2007, the Company sold the branch network of Doral Bank NY."

Update - 2008-03-19: In an article yesterday, 2008-03-18, CNBC reported that Doral Financial is one of the firms implicated in the FBI's probe of 17 mortgage companies. It notes that "A former Doral treasurer was indicted for investment fraud earlier this month. He denied the allegations and the company declined to comment."

According to a 2008-03-06 article, former treasurer and senior executive vice president Mario Levis' misrepresentation of Doral's financial condition and performance resulted in a loss of $4 billion.

Original Listing - 2008-03-19: The company swung to a net loss of $117 million in 2006, from a gain of $13.2 million in 2005. It needs to refinance $625 million by July or it faces a terminal cash crunch.

More on recent scandal and errors from the article above:

"Last year, Doral agreed to pay a $25 million penalty to settle fraud charges with the U.S. Securities and Exchange Commission. Doral did not admit or deny the allegations.

The SEC said Doral overstated profit by about $921 million over several years. The mortgage company's former senior management is accused of manipulating the underlying assumptions for mortgage-sale related gains that helped the company generate 28 straight quarters of record profit."

Doral's lending unit is actually "Doral Mortgage." We'll put up information on the relative size of that unit as it becomes available. However it seems a foregone conclusion that the influence of Doral Mortgage is enough to potentially crater the entire company.