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Earnings Devastated by Subprime

Earnings Devastated by Subprime

Recent mortgage M&A and corporate activity

April 16, 2007

By COCO SALAZAR

photo of Coco Salazar
A rash of mortgage-related companies announced subprime hits to their earnings — with some exiting mortgage lending altogether. Meanwhile, some banks and net branch operations are still growing.

But first, more than 50 Florida branches operating as Fidelity Federal will now operate as National City while up to 30 new branches are planned, parent National City Corp. announced today. Fidelity was acquired in January.

First Horizon National Corp. appointed D. Bryan Jordan to replace Marty Mosby as chief financial officer, effective May 1, according to a press release. Mosby will be taking on a strategic role in First Horizon’s capital markets group.

On Tuesday, Accredited Home Lenders Holding Co. said it engaged Squar, Milner, Peterson, Miranda & Williamson LLP as its independent public accountant, which will begin work immediately to complete the audit of Accredited’s financial statements for 2006.

In Indiana, Irwin Financial Corp. said it expects to incur a loss of between $5 million to $10 million in the first quarter 2007 partially due to a loss in home equity operations resulting from the “rapid and dramatic” changes in the condition of the secondary markets for consumer mortgages during February and March.

MGIC Investment Corp., with $92.4 million in first quarter net income down from $163.5 million a year earlier, had income from joint ventures fall to $14.1 million from $39.1 million for the same period, primarily as a result of the operating loss at C-BASS, according to a press release.

GE Money’s first quarter earnings of $851 million were tempered by challenges at its U.S. mortgage business, nonprime lender WMC Mortgage, according to an announcement. WMC had a net loss of $373 million, of which 88 percent was due increased reserves for loans it holds and for potential future loan repurchases, the company said in a conference call.

The Securities and Exchange Commission reported it didn’t oppose the distribution of a $357 million fund to certain investors of Fannie Mae between Jan. 14, 1999 and Dec. 22, 2004.

Peoples United Financial Inc. announced it successfully converted from a mutual holding company to a publicly-owned stock form holding company — generating an expected $3.44 billion. Shares of its common stock sold began trading on the NASDAQ Global Select Market on today under the symbol “PBCTD” and after 20 days later will trade under the symbol “PBCT.”

FBR Capital Markets Corp. filed an SEC registration statement in connection with a planned initial public offering of up to 13.5 million shares of common stock that parent Friedman, Billings, Ramsey Group Inc. beneficially owns. After the offering, the parent will own a nominal majority of the subsidiary’s issued and outstanding shares of common stock.

Allied Home Mortgage Capital Corp., the self-described largest privately held mortgage banker/broker in the nation, signed on to its network a branch in New Lenox, Ill. The branch is Allied’s first in the city and 15th in the state.

Small mortgage operations seeking to maintain their identity are being courted by Interactive Financial Corp. — which promises reduced operating costs and multistate lending. New branches keep their original name, become a separate division of the “mortgage banker/broker” company and receive accounting and support services.

NovaStar Financial Inc. said it received a $100 million financing commitment for general corporate purposes from Wachovia Capital Markets LLC. The company is also exploring a sale — though potential buyers are few and far between.

That news came a day after Brower Piven announced class action lawsuits have commenced in the U.S. District Court for the Western District of Missouri on behalf of NovaStar investors. The subprime lender is accused of making false and misleading statements to artificially inflate its share prices. Brower noted NovaStar shares fell 42 percent in a single day following its fourth quarter earnings announcement.

Equity capital manager Farallon Capital Management LLC has been given exclusivity to negotiate, on April 16, the potential $1.8 billion purchase of Affordable Residential Communities Inc.’s manufactured home community business, according to a press release. Affordable’s complimentary business activities include financing sales of manufactured homes, its Web site stated.

Security Bank Corp. said it has agreed to buy First Commerce Community Bankshares Inc. in a deal expected to close in the third quarter. Security’s announced deal, its latest in the metropolitan Atlanta market, is consistent with the strategy of expanding into demographically attractive markets.

Sterling Financial Corp. will acquire North Valley Bancorp in a $196.2 million transaction expected to close in the third quarter, according to a press release. The merger will strengthen Sterling’s position in northern California.

Reverse Mortgage Solutions Inc. announced it began operations last week, according to an announcement. The technology vendor will add “specialty servicing capabilities for forward mortgages, which will be in high demand as the mortgage industry begins to suffer from high defaults and losses,” to its private-label subservicing technology and reverse consulting services.

Indemae Home Mortgage LLC/Porto Enterprise LLC will open its doors on April 19 through a net branch office in Brandon, Fla. The company was created to provide home mortgage consulting services and home equity lines of credit for both residential and commercial business in all 50 states.

Fremont General Corp. announced today it will sell the majority of its remaining subprime mortgages, approximately $2.9 billion, to an unnamed party. Last month the former lender said it had already received $950 million in cash and expected to collect the remaining $3.05 billion in a few weeks. A pretax loss of around $100 million is expected on the latest sale, while the pretax loss on the total $4 billion was estimated at $140 million.

LandAmerica Financial Group Inc. announced a non-cash write down of about $21 million on intangible assets as a result of the projected loss of business from Fremont. LandAmerica acquired LandAmerica Tax and Flood Services Inc.in October 2003.

Virginia-based Millennium Bankshares Corp. said it will wind down mortgage operating subsidiaries and revised 2006 earnings lower by $4.5 million. The charge was due, in part, to potential subprime repurchase exposure amid credit quality issues that surfaced in its portfolio held for sale.


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