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Subprime Debacle Still Claiming Victims

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Subprime Debacle Still Claiming Victims

Recent mergers, acquisitions and corporate activity

July 13, 2007

By COCO SALAZAR

photo of Coco Salazar
Subprime market conditions have prompted the liquidation of one hedge fund and big redemptions at another. And as one subprime lender filed for bankruptcy protection, another may have found a white knight.

But first, after undergoing remodeling, City National Bank is changing its name to First Financial Bank N.A., to better reflect its growing financial services and capabilities, including mortgage, trust and treasury management, according to a press release.

At Sovereign Bank, Thomas W. Nadeau was promoted to president and chief executive officer of the consumer lending and mortgage banking divisions. He will oversee mortgage and home equity lending and consumer credit cards, according to a news release.

Standard & Poor’s recently added Walter Industries Inc. to its Select Servicer List following a comprehensive assessment of operational capabilities for servicing residential mortgage portfolios, including the firm’s management and organization, internal controls, historical portfolio performance, cash management, organizational efficiency and loan asset/administration. The mortgage servicing arm of Walter Mortgage Co. said its direct contact servicing business model has allowed it to improve its portfolio’s performance in a time when other subprime services are struggling, according to an announcement.

Mortgage Investment Lending Association, which is winding down operations, filed for Chapter 11 bankruptcy protection on July 2, according to documents filed in the U.S. Bankruptcy Court in Seattle, Wash. A U.S. Trustee has been appointed to MILA’s case and a meeting with the creditors is scheduled for July 31. A list of creditors holding the 20 largest unsecured claims included Bear Stearns, GMAC-RFC, and Deutsche Bank.In contrast, troubled subprime lender NovaStar Financial, which recently said it was seeking strategic alternatives for the firm, may be receiving an investment of $250 million to $300 million from Mass Mutual, according to TheStreet.com

Earlier this month, United Capital Asset Management said that it temporarily suspended redemptions on some of its Horizon Strategy group hedge funds after receiving an “unusually high number of redemption requests,” including a request from its largest investor that accounts for nearly one-quarter of its assets under management.

“The structured-finance marketplace was very volatile during June as news broke early in the month of significant losses in a large ABS/MBS hedge fund,” United said in an announcement. “June saw a dramatic widening of credit spreads across asset-backed securities, mortgage- backed securities and collateralized debt obligations.”

“Observing these serious market conditions …, we reduced many cash bond and all synthetic positions in June,” United added. “We have greatly lowered the Horizon’s leverage. We sold a large amount of cash securities into the market without issuing bid lists or conducting auctions.”

It additionally said Horizon lost money in closing down its positions in the ABX and that it had stopped trading synthetic markets, noting it viewed these “as highly volatile.” United emphasized, however, that neither itself nor Horizon are liquidating and intend to continue in operation.

A fund that will begin liquidation is the Galena Street Fund, which has approximately $300 million in assets and is administrated by The Bank of New York, according to an announcement by Braddock Financial Corp. In the meantime, Braddock has suspended current redemptions. Braddock was working with The Bank of New York for each Galena investor to receive approximately 20 percent of their current balance in the fund by this week.

The decision came as a “result of redemption requests that were triggered by news that has impacted the ABS markets negatively,” Braddock said.

“Unlike other ABS funds, Galena Street Fund has virtually no leverage,” Braddock noted. “Our debt is less than 2 percent of fund assets. Given that Galena is not forced to sell assets to pay off debt, we feel that investors are best served by an orderly disposition of fund assets.”

United and Braddock’s suspensions follow Bear Stearn’s June bail out on two hedge funds due to high levels of margin calls and difficulty in creating necessary liquidity and working capital to continue operating the funds. Bank of America Securities LLC analysts subsequently issued a report in which it said the demise of the two funds “could be the tipping point of a broader fall-out from subprime mortgage credit deterioration that would lead to cascading deleveraging and ultimately ending with higher rates to new mortgage borrowers.”

Florida Traditions Bank submitted a de novo banking application to Florida’s Division of Financial Institutions. Received in May, the application had not been approved as of today. James S. “Bud” Stalnaker Jr. is listed as president and CEO of the proposed bank, according to the division’s Web site.

New Peoples Bank recently closed on the purchase of FNB Southeast’s banking offices in Norton and Pennington Gap, Va.

Nevada-based Greystone Financial Group recently entered the California market by acquiring certain assets of Platinum Community Bank F.S.B., including its Carlsbad-based wholesale lending operations, an announcement indicated. Greystone said it would employ substantially all of Platinum’s wholesale lending group employees in the Carlsbad fulfillment center and account executives located throughout California. Upon the June 30 acquisition, James M. Girard became president of Greystone, which added that it looked forward to continuing its national expansion plans for both retail and wholesale as a result of this initial transaction.

In Pittsburgh, Penn., The PNC Financial Services Group Inc. recently announced that it closed on the deal to acquire Calabasas Hills, Calif.-based ARCS Commercial Mortgage.

Troubled subprime lender NovaStar Financial, which recently said it was seeking strategic alternatives for the firm, may be receiving an investment of $250 million to $300 million from Mass Mutual, according to TheStreet.com. The investment from Mass Mutual, a closed-end investment company may be directly or through an affiliate such as Babson Capital Management.


Coco Salazar is an associate editor and staff writer for MortgageDaily.com.e-mail: MortgageWriter@aol.com


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