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The Mortgage Crisis of 2007

Recent mortgage related mergers, acquisitions and other corporate activity

August 7, 2007

By COCO SALAZAR


photo of Coco Salazar

As several firms warned about earnings and liquidity, Countrywide Financial Corp. touted its cash position. The lending giant was one of two companies this week to negotiate a mortgage lending acquisition essentially at a purchase price of nothing.

The Bear Stearns Companies Inc. issued an announcement Sunday notifying that Warren J. Spector resigned from his positions of president and co-chief operating officer, and member of the executive committee and board. Alan D. Schwartz became Bear's sole president and Samuel L. Molinaro Jr. will serve as COO in addition to his current duties as chief financial officer. The changes come in light of the recent events concerning Bear Stearns Asset Management's High Grade and Enhanced Leverage funds. These promotions reflect and acknowledge the depth of talent in our senior management team.

This week saw another German hedge fund manager, Frankfurt-Trust, temporarily suspending investor fund withdrawals. Franfurt's case follows last week's suspension by German-based IKB. While Frankfurt has not invested in subprime mortgages, its ownership of securitized assets exposes it to the credit markets, which have come under pressure in the subprime mortgage collapse, according to the Wall Street Journal.

Following its decision to suspend taking applications for new home equity loans and lines of credit, National City Home Equity issued a statement noting that such financing is still available on a retail basis and that the suspension is one of a number of steps National City has taken in recent weeks to help ensure that mortgage origination strategies are in line with existing and anticipated market conditions.

CIT Group Inc. said it expects home lending charge-offs to be approximately $45 million to $50 million in the second half of the year, but noted this is consistent with the fair value adjustment, according to an announcement today. The company took a $765 million pretax charge, or over $495 million after tax, in the second quarter that was net of $228 million in pre-existing credit reserves and related to a fair value adjustment from moving $10.6 billion in mortgage receivables to assets held for sale in connection with its planned exit from the home lending business.

Luminent Mortgage Capital Inc. announced that it is simultaneously experiencing a significant increase in margin calls on its highest quality assets and a decrease on the financing advance rates provided by its lenders. The San Francisco-based company is looking at strategic alternatives to enhance its liquidity.

Since Friday, "the mortgage industry, and the financing methods that the mortgage industry relies upon, have deteriorated significantly and in an unprecedented fashion," Luminent explained. "Effectively, the secondary market for mortgage loans and mortgage-backed securities has seized-up."

Consequently, Luminent suspended payment of the second quarter cash dividend, extended the maturity of outstanding commercial paper issued by Luminent Star Funding Trust I by 110 days, delayed the filing of its second quarter financial report, and its stock was halted from trading on the New York Stock Exchange.

The Peoples Bank created a full-service mortgage loan department that will concentrate in residential loans for primary, secondary and multi-family homes up to four units. Land acquisition to construction financing to a permanent mortgage for both primary residence and investment properties are included in the services of the unit, which will be headed by Chevis C. Swetman, People's chairman and CEO.

First Meridian Mortgage has partnered with the Trump Organization to form Trump Financial. The new entity will offer a wide variety of financial products and services while remaining focused on the residential mortgage expertise of First Meridian, reportedly licensed in 12 states and one of the fastest growing mortgage bankers in the country. The announcement of the new entity was posted on the Web site belonging to Trump Mortgage, which was launched less than two years ago and is reportedly closing its doors.

In a transaction expected to close next quarter, Coast Financial Holdings Inc. will be acquired by First Banks Inc., the companies announced. The purchase price is $22.1 million though this will be reduced to the nearest $500,000 increment, upward or downward, if Coast's allowance for loan and lease losses plus its tangible equity is less than 75 percent of its non-performing loans and leases plus other real estate owned and if such deficiency is greater than $1 million. The deal comes on the heels of Coast settling a cease and desist order issued by Federal Deposit Insurance Corp. and the Florida Office of Financial Regulation that ensued an examination in which regulators discovered problems with the residential construction loan portfolio.

Meanwhile, Countrywide boasted about its liquidity in a filing with the Securities and Exchange Commission that disclosed as of June 30 the company's had short-term liquidity of $190.3 billion available out of a capacity of $283.6 billion, while its net available liquidity was $186.5 billion.

The company today announced it would acquire the retail operations of HomeBanc Corp. in a deal expected to close this week. Countrywide noted it would pay no cash premium for the company.

And the HomeBanc acquisition isn't the only deal that will essentially cost its acquirer nothing.

Transnational Financial Network Inc. agreed to sell its mortgage operations in consideration of the assumption of all outstanding obligations and indemnification of the company for contingent liabilities.

An affiliate of Transnational CEO Joseph Kristul and President Maria Kristul is anticipated to make the acquisition.

"Consistent with the challenges in the mortgage industry, Transnational has seen its operations and capital position deteriorate," the announcement said. "Given the current difficulties in the mortgage industry and our anticipation that these problems will continue for an indefinite time, this acquisition holds promise for our shareholders that they would not otherwise see in the mortgage industry for some time."


Coco Salazar is an associate editor and staff writer for MortgageDaily.com.

e-mail: [email protected]


Corporate Mortgage News
M e r g e r s, a c q u i s i t i o n s and private and public offerings. Other corporate activity including executive appointments, bankruptcies name changes.


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hard money lending. Home-equity loans and home-equity lines of credit.


Mortgage REIT news | REIT Directory
Coverage of real estate investments trust companies, litigation and corporate activity.




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