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Acquisitions, Losses and Meltdowns

Recent mergers, earnings and corporate activity

April 9, 2008


The latest week of boardroom activity included three mortgage company acquisitions, the launch of a special servicer and a warning about a possible collapse. Meanwhile, losses continued as three mortgage insurers saw their ratings downgraded.

But first, Charles O. Moore was hired as president and chief executive officer of Regency Finance Co., parent F.N.B. Corp. announced. Moore previously served as president of the consumer finance division of US Bank and had previously been an executive for Centex Home Equity Corp.

IndyMac Bank securitized $335 million in prime jumbo and Alt-A hybrid adjustable-rate mortgages on April 1 in a transaction that will settle on April 15, according to its company blog. The issuance resulted in a $2 million pre-tax loss.

In a filing with the Securities and Exchange Commission, PHH Corp. warned that it expects first-quarter mortgage production and servicing results "will be negatively impacted by mortgage market volatility during the first quarter 2008, including widening secondary mortgage market spreads to Treasury securities and less liquidity in the secondary mortgage market."

BayernLB Group reported $6.8 billion (U.S.) in first-quarter valuation write-downs. The company is Germany's second largest bank.

Ratings of subsidiaries of The PMI Group Inc., Radian Group Inc. and MGIC Investment Corp. were lowered by Standard & Poor's Ratings Services. In addition, Radian said it was considering a broad range of alternatives to strengthen its capital position, including a full or partial sale of Radian Asset.

Freddie Mac immediately issued a statement that indicated that under a policy it announced in February, the eligibility status of a mortgage insurer won't automatically change just because of a downgrade.

"Instead, a mortgage insurer has up to 90 days to send Freddie Mac a complete remediation plan for restoring its AA- rating, so long as it commits in writing to do so within 24 hours of the downgrade," Freddie stated. "Freddie Mac will then determine, at its sole discretion, whether or not to impose additional requirements and the nature of those requirements."

The Federal Deposit Insurance Corp. announced Cease and Desist orders against First Standard Bank, Integrity Bank, State Bank and Trust Co., 1st American State Bank of Minnesota, ISN Bank, Quality Bank, United Bank of Philadelphia, Doral Bank and Wallis State Bank.

FDIC also said it issued Removal and Prohibition orders against Valley State Bank, Savings Bank of Mendocino County, Signature Bank KC, Fidelity Bank, The Bank of Elk River, Bank of Belton, Greene County Bank and The Merchants Bank.

Civil money penalties were issued by the insurance agency against Valley State Bank, Savings Bank of Mendocino County, First American Bank & Trust Company and Signature Bank KC.

Orders were terminated against Green Belt Bank & Trust and Bank of Camden, Camden, FDIC reported, and an Order Terminating Supervisory Prompt Corrective Action Directive was issued against Virgin Islands Community Bank.

GMAC LLC recently purchased $1.2 billion in notes issued by Residential Capital LLC on the open market for a fair value of $0.6 billion and contributed them to ResCap on March 31 in exchange for 607,192 ResCap Preferred units, according to an SEC filing Friday. GMAC also has the option to contribute up to an additional $340 million of ResCap notes with a fair value of approximately $265,779,000 on or before May 31, 2008, in exchange for additional ResCap Preferred units.

The Federal Home Loan Banks of Chicago and Dallas announced the termination of merger discussions. The two first disclosed a possible merger last August.

In addition, FHLB Chicago announced President and CEO Mike Thomas will leave Friday and temporarily be replaced by Matthew Feldman.

CNBS Financial Group Inc. reported it has acquired the HomeBanc name from the former HomeBanc Corp. The name will be used for CNBS loan production offices.

HomeBanc Corp. sold its retail operations to Countrywide Financial Corp. in August 2007 and filed for bankruptcy a few days later.

Acqura Loan Services has been launched by Strategic Recovery Group LLC, a press release indicated. Acqura will provide special servicing for lenders, hedge funds and investors in distressed debt. The new unit already has three clients.

Fortress Financial Group Inc. said Friday it is on track to complete its acquisition of the Trinity Mercantile Finance Group of Companies this Friday. The deal is subject to satisfactory due diligence.

New York-based Fortress also said it expects to acquire a New York-based mortgage banker by April 25. The acquisition target operates nationally.

"The acquisition of a mortgage bank will allow Fortress Financial Group Inc. to easily acquire large amounts of independent mortgage brokers; with the resulting increased 'Mortgage Commissions' flowing directly to the bottom line earnings of the group," the announcement said. "Stockholders are advised that upon the completion of these acquisitions. Fortress will immediately commence its very aggressive acquisition plan to build its 'distribution pipeline' through large-scale acquisitions of independent mortgage brokers in targeted states."

MetLife Inc. announced an agreement to acquire EverBank Reverse Mortgage LLC from EverBank. EverBank Reverse will be operated as a subsidiary of MetLife Bank. Terms of the acquisition, which is expected to close by July 31, weren't disclosed.

"MetLife Bank added reverse mortgages to its product portfolio in 2007," MetLife Bank President Donna DeMaio said in the statement. "The acquisition of EverBank Reverse Mortgage will help us rapidly grow this business."

Hanover Capital Mortgage Holdings Inc. reported a fourth-quarter loss of $38 million and a full-year 2007 loss of $80 million in an SEC filing. The loss was primarily due to a $74 million impairment expense for other-than-temporary declines in fair value of its subordinate mortgage-backed securities portfolio.

"While the company has sufficient cash to continue operations up to and beyond August 9, 2008, the company does not have sufficient funds to repay the outstanding principal of this facility upon its scheduled repayment date of August 9, 2008," the filing said. "Additional sources of capital are required for the company to generate positive cash flow and continue operations beyond 2008.

"These events have raised substantial doubt about the company's ability to continue as a going concern, and, as a result, the company's auditors have included an explanatory paragraph, which raises doubt about the company's ability to continue as a going concern."

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of

e-mail: [email protected]

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