|The seizure of nearly $0.5 billion in mortgages has resulted in a tidy gain for one institution and a servicing opportunity for another.
Huntington Bancshares Inc. has taken control of 30,000 first and second mortgages for $494 million from Franklin Credit Management Corp., an announcement yesterday said. Accruing loans accounted for $127 million of the total. In addition, $80 million in other real estate owned was acquired.
The mortgages previously served as collateral on $615 million in non-accrual commercial loans to the former subprime lender from Huntington. The transaction reduced the non-accrual holdings by $249 million.
Huntington previously reported a $418 million fourth-quarter 2008 loss, reflecting a $961 million increase in non-performing assets -- including the $650 million in loans to Franklin. It took a $500 million credit-loss charge on Franklin in 2007.
The latest move resulted in a $160 million after-tax one-time benefit for Columbus, Ohio-based Huntington -- reflecting the elimination of a $130 million allowance for credit losses. No allowance for loan losses were established on the assets since they were recorded at fair value.
Huntington noted that future loan modifications at below-market terms will be accounted for as troubled debt restructurings.
By unloading the assets, Franklin will be freed up to independently pursue its third-party loan servicing business, Huntington said. Franklin will service the other REO assets taken by Huntington.
"We can accelerate the resolution and recovery of the value embedded in these assets as this relieves Franklin from the ownership of these assets," Huntington Chairman, President, and Chief Executive Officer Stephen D. Steinour said in the statement.