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Subprime Lender Changes Hands

Fortress Investment to acquire Centex Home Equity

March 30, 2006

By MortgageDaily.com staff

A Dallas-based homebuilder has agreed to sell its nonprime lending unit.

Centex Corp. said Thursday it expects to close on the sale of Centex Home Equity Co. LLC to an affiliate of Fortress Investment Group LLC within the next three to four months.

The purchase price will consist of a payment based on the book value of Centex Home Equity, plus a premium to be calculated in accordance with agreed upon procedures, according to the announcement.

Centex said it estimates it will receive net after-tax cash of about $575 million in connection with the sale and will use the money for investment in home building operations and additional share repurchases.

Centex Home Equity, sometimes referred to as 'CHEC', "has been a growing and profitable part of Centex," said Tim Eller, the parent company's chairman and chief executive, in an announcement. "However, our focus on home building would not give [the unit] the opportunities for accelerated growth [it] can realize in a different capital allocation environment."

Previously known as Nova Credit Corp., the home equity business's loan volume of $6.0 billion in 2005 was about $1 billion better than in the previous year. Meanwhile, the $8.76 billion loan servicing portfolio at yearend grew 13% from 2004, Centex reported.

For the nine months ending Dec. 31, 2005, Centex Home Equity's revenues amounted to $617 million and operating earnings to $96 million.

"The long term outlook for home building industry leaders is bright and the disposition of [the home equity business] supports our strategy of focusing on our core home building operations," Eller added. "With the completion of this transaction, over 95% of our future Centex operating earnings will be provided by our home building operations."

Centex disclosed no plans to dispose of CTX Mortgage.

Some Centex Home Equity executives, including President Anthony H. Barone, previously worked for Associates First Capital and the unit it acquired while part of the Ford Motor Co., previously known as General Electric Credit Corp.

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