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Executives Shuffled as Mortgage Woes Continue

Executives Shuffled as Mortgage Woes ContinueRecent mergers, earnings and corporate activity

May 9, 2008


Wachovia Corp. has a new chairman, Regions Financial Corp. is hiring a new mortgage chief and Residential Capital LLC is still scrambling for liquidity. And as American International Group reported a massive mortgage-related loss, some of Fannie Mae’s and Freddie Mac’s ratings were placed on watch.

Wachovia Corp. announced Thursday President and Chief Executive Officer Ken Thomspon would relinquish his role as chairman, though he will remain a director. Replacing Thompson on the board will be Lanty Smith.

Smith, the chairman and CEO of Tippet Capital, has been a director of the Charlotte, N.C.-based company since 1987 and a lead independent director since 2000, the statement said. He has also previously chaired the audit committee.

David H. Rupp has been hired by Regions Financial Corp. to head its consumer services. As executive vice president and a member of the executive council, he will lead the Birmingham, Ala.-based company’s mortgage business line.

Rupp, who previously served as an executive for Bank of America and Wachovia Bank, begins his new assignment on May 19. He replaces Candice Bagby, who is retiring.

Standard & Poor’s Ratings Services Tuesday placed Fannie Mae’s AA- risk to the government, preferred stock, and subordinated debt ratings on CreditWatch Negative because of weak core earnings and elevated mortgage credit losses. The action follows Fannie’s announcement that it lost $2.2 billion in the first quarter.

S&P also placed Freddie Mac’s AA- risk to the government, subordinated debt, and preferred stock ratings on CreditWatch Negative, noting, “The action was a result of expected lower earnings for 2008 and 2009 and quarterly earnings volatility that is reaching beyond the tolerance for the AA- rating.”

American International Group Inc. Thursday reported a $7.8 billion first-quarter loss, compared to a $4.1 profit a year earlier. Impacting earnings was a $9.1 billion unrealized market-valuation loss tied to a super senior credit default swap portfolio. AIG reports an $82.3 billion portfolio of residential mortgage-backed securities as of March 31, including $21.6 billion in subprime RMBS and $23.7 billion in Alt-A RMBS. The New York-based company said it plans to raise $12.5 billion through stock and fixed-income securities offerings.

Fitch Ratings downgraded AIG’s issuer default rating and senior debt ratings Thursday following is earnings report.

GMAC LLC is currently negotiating to provide a new 2-year, $3.5 billion, senior-secured credit facility to Residential Capital LLC, which recently announced it is looking to trade $12.8 billion in outstanding notes for new notes, General Motors said in a Securities and Exchange Commission filing Thursday. GM noted that it is in discussions with Cerberus to acquire a total $750 million first loss participation in the proposed senior credit facility if ResCap’s exchange offer is successful.

GMAC said in another SEC filing that it is considering pursuing strategic alternatives for ResCap, including the continued reduction of assets, the exploration of potential alliances and joint ventures with third-parties, and GMAC’s own funding or capital support to ResCap. Assets being considered for liquidation include RMBS and whole loans. But the company acknowledged that market conditions are currently bad.

“Additionally, ResCap is seeking amendments to substantially all of its secured bilateral facilities that would extend the maturities of such facilities or modify the tangible net worth covenant contained in such facilities,” GMAC’s filing stated. “While successful execution cannot be assured, management believes the plans are sufficient to meet ResCap’s liquidity requirements over the next twelve months. If unanticipated market factors emerge and/or ResCap is unable to successfully execute its plans, referenced above, it would have a material adverse effect on our business, results of operations and financial position.”

Bloomington, Minn.-based Lakeland Mortgage Corp., which in April announced it would acquire Northwest Mortgage Co., has reportedly closed on the deal. The merger brings the number of employees at the privately-held lender to 85 operating from five Minneapolis-area locations.

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