The country's credit crunch has cost two companies more than $8 billion and one wholesaler its life. Meanwhile, an exodus of founding chief executive officers from real estate investments trusts has one ratings agency warning bondholders about the troubling trend.
REIT founders and their family members are stepping aside as non-family members and second generation executives take control, a trend that troubles Moody's Investors Service. The agency announced it had viewed family control favorably because it leads to conservative financial policies and decisions based on a longer-term perspective, there are many signs that controlling shareholders are now considering their investment options more broadly and sometimes are not willing to operate under demands associated with remaining a publicly traded company.
"This change in perspective is a negative for bondholders," Moody's said in the announcement, "Selling out typically means higher leverage and an investor base with a short-term investment horizon; going private, even when the family remains involved, means higher leverage, less transparency, and less investment in core controls."
Allied Home Mortgage Capital Corp. announced a new branch in Summerville, S.C. The net branch operation, which reports $12 billion in 2004 originations, claims to be "the largest privately held mortgage banker/broker in the U.S."
Ambac Financial Group Inc. reported a third quarter net loss of $361 million, compared to earnings of nearly $214 million a year earlier, was prompted by the previously disclosed unrealized $743 million mark-to-market loss on credit derivative exposures resulting from unfavorable market pricing of collateralized debt obligations.
Write-downs of $7.9 billion for CDOs and U.S. subprime mortgages were the main drivers of the $2.3 billion net loss Merrill Lynch & Co. announced for its third quarter today. Merrill noted the write-downs were much larger than the $4.5 billion it anticipated at the time of its earnings pre-release because difficult credit markets and additional analysis at the quarter-end closing process let it to re-examine its remaining CDO positions with more conservative assumptions.
Moreover, "We expect market conditions for sub-prime mortgage-related assets to continue to be uncertain and we are working to resolve the remaining impact from our positions," said Stan O'Neal, Merrill chairman and chief executive officer, in the announcement. "Away from the mortgage-related areas, we continue to believe that secular trends in the global economy are favorable and that our businesses can perform well, as they have all year."
Following Merrill's released results, Fitch Ratings announced it downgraded Merrill's credit ratings and kept it on the Negative Rating Outlook.
"The size of Merrill Lynch's CDO position and subsequent loss reveal deficiencies in risk management," the ratings agency said in the announcement. "Fitch anticipates liquidity and pricing challenges to prevail in the market over the intermediate term potentially resulting in lower revenues (in select products/services), investment write-downs and/or fewer principal trading opportunities."
Honor State Bank confirmed to MortgageDaily.com that it closed its wholesale mortgage lending division as of Tuesday. The move affected about 10 employees. In the "good days," which the company cited as being since the division's opening in 1998 through 2006, wholesale volume was between $35 million and $40 million.
The closure forms part of a restructuring plan that called for a reduction in workforce as a result of "the turmoil in the U.S. real estate finance market," Honor State said on its Web site.
CWCapital Asset Management LLC announced it was appointed special servicer of a $36 billion portfolio consisting of 12 commercial mortgage-backed securities transactions. The appointment by ACAS CRE CDO 2007-1 Ltd, directed by American Capital, increased the size of CWCapital's CMBS special servicing portfolio to 14,500 loans for $178 billion, making it the second-largest appointed special servicer.
This week, a bankruptcy judge gave Wilbur L. Ross Jr. the green light to acquire the loan servicing operations of bankrupt American Home Mortgage Investment Corp. for as much as $500 million, Bloomberg reported. Banks that purchased loans from American Home that went bad, including units of Bear Stearns Cos., GMAC Mortgage and Citigroup Inc., had argued that whoever serviced the loans should also buy back the bad loans because the contracts used to sell some of them contained language covering servicing rights. But the judge ruled the buyer of the servicing rights was not forced to buy the bad loans.
An acquisition of Community Bank by Chittenden by Chittenden Corp. was approved by Community's shareholders, according to an announcement today. Chittenden, headquartered in Burlington, Vt., is expected to close on the acquisition this month.