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Buy, Sell or Restructure?

Buy, Sell or Restructure?Cendant, FBR and GMAC announce deals

January 24, 2005


While mortgage sector mergers, acquisitions and restructurings have been plentiful as of late, some big players have recently announced transactions.

In Arlington, Va., Friedman, Billings, Ramsey Group Inc. recently announced it will acquire 100% of the equity interest of nonconforming originator First NLC Financial Services for $88 million in a cash-and-stock deal expected to close during this quarter.

The financial services firm said the acquisition is part of a broader strategy to expand the assets in its real estate investment trust portfolio.

“Through this acquisition, we expect to obtain significant advantages and flexibility in our mortgage business, including the ability to originate, price, portfolio and sell mortgage assets based on market conditions, co-chief executive Emanuel Friedman said in a written statement. “This is a powerful combination that enhances and supports our commitment to the mortgage and asset-backed sectors of the capital markets.”

First NLC is a wholesale and retail originator with a current origination run rate exceeding $4 billion annually. The Florida-based affiliate of Sun Capital Partners Inc. will become a part of Friedman’s principal investment group and operated as a wholly owned subsidiary. Its current executive team will remain in place, according to the announcement.

On Jan. 31, Cendant Corp. will spin-off its mortgage and fleet businesses through the distribution of 100% of the shares of its PHH Corp. subsidiary. The distribution will be payable to Cendant stockholders on record as of the close of business on Jan. 19, 2005.

“As we have said previously, the spin-off of our mortgage and fleet management operations represents a key step in Cendant’s strategic plan to reduce complexity and focus solely on the travel and real estate services industries,” Cendant chief executive Henry Silverman said in the announcement. “At the same time, the structure of this transaction will allow us to keep intact the benefits of our real estate ‘value circle’, whereby we derive significant benefits from cross-selling various real estate services.”

New York-based Cendant reported it closed a total $12.7 billion in loans during the third quarter.

Cendant will continue to participate as an owner in the earnings from the origination of mortgages from customers of Cendant’s real estate brokerage and relocation businesses by entering into a mortgage origination venture with PHH, it said. PHH will manage the venture and retain all servicing asset risk.

PHH, reportedly the sixth largest retail originator of residential mortgage loans, has filed an application to list its stock on the New York Stock Exchange under the symbol “PHH.”

Terence Edwards, who is currently president of PHH’s mortgage services business, will reportedly become the independent company’s chief executive officer.

GMAC announced it is considering folding its two residential mortgage businesses into a holding company named Residential Capital Corp. The restructuring, which will make GMAC Mortgage Corp. and Residential Funding Corp. subsidiaries of the new entity, will occur this year pending executive approval.

Residential Capital, a wholly owned subsidiary of Detroit, Mich.-based GMAC, would reportedly seek a stand-alone credit rating based on its separate capital structure and corporate governance protections with the purpose of enhancing liquidity and cost effectiveness of the financing of the mortgage operations.

Missouri-based First Banks Inc. recently said it will buy FBA Bancorp Inc. and its wholly owned banking subsidiary, First Bank of the Americas, S.S.B, for $10.5 million in cash. The transaction is expected to be completed next quarter.

FBA, of Chicago, Ill., operates three banking offices dedicated to serving Hispanic communities in the southwestern metropolitan area of that city through First Bank of the Americas, an Illinois savings bank.

“This acquisition allows us the exciting opportunity to directly service the rapidly growing Chicago Hispanic community,” First Banks executive Terrance McCarthy said in the announcement.

First Banks said it will supplement FBA’s products with a full menu of products and services such as commercial and consumer deposit and loan products, and mortgage banking.

On Dec. 31, Fulton Financial Corp. reportedly completed its acquisition of First Washington FinancialCorp and its banking subsidiary First Washington State Bank. The transaction is valued at approximately $148 million.

The acquisition of New Jersey-headquartered First Washington State Bank raised Fulton Financial’s number of banking affiliates to 13, according to an announcement.

Pennsylvania-based Fulton Financial offers residential mortgage lending through Fulton Mortgage Co. and through Resource Mortgage.

Coco Salazar is an assistant editor and staff writer for

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