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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.

Planned Provident IPO to Fund Mortgage Portfolio

$300 million sought for new REIT

March 9, 2011

By staff

Provident Funding Associates LP -- which has been a party to several lawsuits -- plans an initial public offering for a newly formed company that will use the $300 million in proceeds for the acquisition of mortgage-related assets.

Provident Mortgage Capital Associates Inc. was just recently formed, according to a Form S-11 filing with the Securities and Exchange Commission Tuesday. Shares will trade on the New York Stock Exchange under the symbol PMCA.

The company will operate as a real estate investment trust and be externally managed by PMF Advisors LLC.

The $300 million in market capitalization sought will be used to acquire residential loans, residential mortgage-backed securities and other mortgage-related assets.

The Burlingame, Calif.-based firm plans the offering as soon as possible.

Senior management -- including the new entity's chairman Craig Pica who founded Provident Funding Associates in 1992 -- and Provident will purchase at least 7.5 percent of the offered shares at the offering price.

Provident Funding Associates originated $26.9 billion during 2010, tumbling from $37.8 billion in 2009. Wholesale originations accounted for $25.3 billion of last year's activity. Fundings had an average FICO score of 770 and an average loan to value of 62 percent.

The 600-employee firm has more than $44 billion in servicing rights,

"For the year ended December 31, 2010, Provident believes it was the second largest wholesale mortgage originator, the third largest non-bank mortgage originator and the eighth largest mortgage originator in the United States," the SEC filing states. "Provident believes it has the lowest servicer delinquency rates as of December 31, 2010, among the country’s top 25 largest servicers."

Data collected by indicate that Provident -- which previously declined to release production data -- ranked as the ninth biggest residential originator last year behind SunTrust.

The higher quality loan originations are reportedly a result of Provident's low 12-basis-point production costs and $42 annual per-loan servicing cost. The company says it "highly focused on being the industry's lowest cost producer and servicer."

Prospective investors in the company might have to contend with a load of litigation if lawsuits involving Provident Funding are any indication.

Provident Funding was recently blocked by a federal court in California from on a Castro Valley property because no one from Provident contacted the borrowers to discuss payment options or to explore their financial situation -- as required by state law.

Provident spokesman Jeremy Kelly ignored Mortgage Daily's request for a statement on the case.

Last September, Marlene Westerfeld filed a class action in Missouri state court against two defendants including Provident. Westerfeld claimed that a "broker processing fee" and an "administrative fee" charged on loans funded by Provident constituted unauthorized practice of law and violated the Missouri Merchandising Practices Act, Mo. Rev. Stat. §§ 407.010–407.1500. The case was removed to federal court, which was challenged but lost on appeal.

In March 2010, a Truth-in-Lending Act lawsuit was filed in U.S. District Court for the District of Arizona against Provident, according to plaintiffs' counsel Schneider Wallace Cottrell Brayton Konecky LLP.

Provident was among the defendants in March 2009 lawsuit filed in U.S. Bankruptcy Court for the Eastern District of Pennsylvania by the trustee in the Chapter 7 Bankruptcy case of Image Masters Inc. The trustee seeks the return of more than $20 million in payments collected by the defendants during the past four years.

Provident Funding Associates and Provident Funding Group Inc. were named as defendants in a class-action filed a few years ago in the Superior Court of the State of California for the County of San Mateo, according to a copy of a proposed $1.2 million settlement. The company was sued over late charges it was assessing.

Around the same time, Provident sued Quicken Loans Inc. in U.S. District Court for the Northern District of California.

AOM Group, LLC v. Provident Funding Associates.
Case Number
2:2010cv00605, March 18, 2010 (U.S. District Court for the District of Arizona).

Daniel C. Silva and Larry Mattison, Individually, and on behalf of all others similarly situated, Plaintiffs, vs. Provident Funding Associates LP and Provident Funding Group Inc., Defendants.
Case No. CIV 443418 (Superior Court of the State of California for the County of San Mateo).

Provident Funding Associates LP, Plaintiff, v. Quicken Loans Inc., and Does 1 through 20, Defendants.
Case No. C-07-5680 JCS, Sept. 28, 2007 (U.S. District Court for the Northern District of California).

Marlene Westerfeld v. Provident Funding Assocs L.P.
Case No. 10-2635 (United States Court of Appeals for the Eighth Circuit on appeal from the Eastern District of Missouri).

read about all Provident Funding lawsuits

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