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Mortgage Sector Shakin It Up

Mortgage Sector Shakin It Up

Recent mergers, acquisitions and corp activity

March 19, 2007

By COCO SALAZAR

photo of Coco Salazar
As one investment banker explores strategic alternatives for its subprime lending unit, a $1.7 billion subprime portfolio is trading hands and Countrywide is acquiring a New York firm.

A mortgage business processing outsourcing was launched by US Technology today, according to an announcement. The origination and service technology consultant, which operates online at www.ustri.com, claims it can help lenders lower costs and improve efficiency.

LEGG LLC will acquire Secura Group LLC, a privately-held consulting firm focused on financial services and regulatory compliance, including on subprime lending and the Home Mortgage Compliance Act, according to an announcement by global expert services firm LEGG Corp. The transaction was scheduled to close Friday.

“Secura has a long history of providing senior-level counsel and strategic advice … especially among leading U.S., and international banks, while its professionals have unmatched knowledge of the regulatory landscape governing these institutions,” LEGG said. “Secura’s extensive service offerings in risk management, credit review, regulatory compliance, litigation, and strategy are a terrific complement and enhancement to our existing financial services practice”

Irwin Bank & Trust Co. said it filed articles of amendment with Pennsylvania regulators to change its name to Irwin Bank after engaging a team of “branding” specialists to research its market, customer base, banking operations and needs for the future.

“We realized we needed to evolve, just as the banking industry was evolving – to find new ways to deliver the best possible products and services to our customers,” Irwin’s president said in an announcement. “Research findings showed us that majority of customers referred to us as “Irwin Bank” and not “Irwin Bank & Trust Company.”

Meanwhile, Wachovia Securities said the combined entities of American Mortgage Network and Wachovia Mortgage Third Party Lending are now named Vertice. The vertically-integrated company originated $18 billion last year and reports to Randy Robertson, head of Wachovia’s residential mortgage and consumer business.

“In Italian, Vertice means ‘the top of one’s profession’ and in Spanish, ‘the coming together of two sides,'” Robertson said in the statement. “Therefore, Vertice is a true description of linking our capital markets benefits to our broker customers, the experience and knowledge of our professionals and, most important, our focus on reaching the highest levels of service and success — the vertex of wholesale lending.”

Following January’s decision by the Federal Deposit Insurance Corp. to extend the moratorium on a number of pending Industrial Loan Company charter applications, Wal-Mart Inc. decided to drop its request for such charter after nearly two years of what it called “manufactured controversy.”

“At no stage did we intend to use the ILC to establish branch banking operations as critics have suggested — we simply sought to reduce credit and debit card transaction costs,” Wal-Mart Financial Services President Jane Thompson said in a statement Friday. “Since the approval process is now likely to take years rather than months, we decided to withdraw our application to better focus on other ways to serve customers.”

Coast Bank met the definition of an “undercapitalized” institution as of yearend 2006 due to the additional provision recorded for allowance for loan losses of $21 million, according to the annual report of parent Coastal Financial Holdings Inc., which cited the provision as the main reason for net losses of $17.3 million in 2006 being worse than net losses of $0.6 million a year earlier. However, the bank was “adequately capitalized” as of Feb. 28, 2007, due to a $14 million capital contribution from the company’s available funds.

The $22 million provision for loan losses in the fourth quarter was based on analysis of performing residential construction loans where the financing by borrowers was primarily for investment purposes, and also $14 million of that was specifically attributed to a group of loans in the residential construction portfolio, “which included an estimate of the current value of those properties under construction, the anticipated costs of completion for those properties, the available construction funds remaining to be disbursed on those loans, an estimated range of default for the borrowers based on their credit worthiness and construction completion progress, and the associated holding and sale costs of the properties that the borrowers may default on,” Coast said in the report.

In Santa Monica, Calif., Fremont General Corp. announced that it would miss the extended March 16 deadline to file its 2006 annual report with the Securities and Exchange Commission, as it continues to evaluate various issues relating to its financial statements amid the subprime mortgage market’s recent increased volatility and following the impact of its subprime origination business closure.

Fremont also said that Credit Suisse increased its committed line of credit to Fremont Investment & Loan to $1 billion and that the company has received proposals for additional credit facilities, enabling it to execute its previously announced plan to exit the subprime origination market in an orderly and disciplined way.

NASDAQ notified Accredited Home Lenders Holding Co. that its common stock is subject to delisting because the company failed to file its 2006 annual report on time, according to a press release today. In addition, a class action lawsuit alleges Accredited, which noted it is in talks over a possible financing arrangement, issued materially false and misleading statements.

Newcastle Investment Corp. announced a deal to acquire 7,300 subprime mortgages with a collective $1.7 billion balance from an undisclosed seller during the next month. The secondary transaction, which calls for Nationstar Mortgage LLC to service the loans, is subject to due diligence. The mostly owner-occupied portfolio has a 28 percent California concentration, a weighted average coupon of 8.02 percent and a weighted average FICO score of 644.

ASI Technology Corp. announced that it recently incorporated a specialty finance subsidiary, ASI Capital Corp., that is licensed as both a mortgage broker and mortgage banker in Nevada and will be led by John Blackmon as its president.

ASI Technology’s focus has been on short-term, high-interest bridge loans, but a recent $2.4 million additional capital infusion allows it to infuse its menu with select residential loans along with performing loan brokerage and related activities.

On Tuesday, Investment bank and brokerage Friedman, Billings, Ramsey Group Inc. said it will explore strategic alternatives to maximize the value of First NLC, its nonconforming mortgage origination business.

First NLC “continues to have more than sufficient liquidity to meet all margin calls and is in compliance with all warehouse agreements,” Friedman said in a written statement. It “has recently undertaken significant additional cost restructuring initiatives and has substantially modified its loan guidelines. These guideline changes will result in meaningfully lower origination volumes in the near-term in addition to greater loan values.”

Friedman said it does not intend to disclose developments with respect to the exploration of strategic alternatives unless its board of directors has approved a specific transaction.

Citing additional liquidity problems, Credit-Based Asset Servicing and Securitization LLC, or C-BASS, announced it has lowered its acquisition price for Fieldstone Investment Corp. to $4 per share.

“The recent severe deterioration of the market for subprime loans has sharply reduced our liquidity and has required us to reduce our merger price in exchange for immediate added liquidity prior to completing our proposed merger with C-BASS,” said Fieldstone President and CEO Michael J. Sonnefeld in the statement.

Countrywide Home Loans Inc. acquired Home Mortgage Acceptance Corp. Countrywide will use Home’s former office as A branch that will help its existing offices serve New York and surrounding areas increase access to local underwriting and approval.

This operational format helps Countrywide work directly with borrowers for faster loan closings and gives Home access to the wide range of home loan products and services of a large mortgage lender, while still allowing it to keep loan processing local, according to the announcement.


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