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Investment Bankers Buying, Subprimers Selling

Investment Bankers Buying, Subprimers Selling

Mortgage mergers, acquisitions and other corporate activity

May 15, 2006


photo of Coco Salazar
Some big investment bankers are looking at mortgage banking acquisitions, while some nonprime mortgage bankers are selling. And in the middle of this mortgage merger mayhem, a new billion-dollar originator is launching.

But first, in Cherry Hill, N.J., a new mortgage servicing subsidiary was created by Popular Financial Holdings Inc., according to an announcement Friday.

Popular Mortgage Servicing Inc. is the “culmination of a strategic move for the company, which allows it to purchase third-party mortgage loan servicing rights from other lenders, along with interim servicing opportunities,” the parent to E-LOAN said.

The new division, recently approved as a mortgage servicer by both Freddie Mac and Fannie Mae, will allow Popular Financial to generate income without the collateral risk associated with ownership of the loan portfolio, according to the announcement.

First Banks Inc. has signed an agreement to acquire San Diego Community Bank for approximately $25.5 million in cash.

First Banks said the merger will provide an “excellent” opportunity to expand its footprint in San Diego, complementing the location of one of its existing branch offices and in alignment with its future de novo expansion plans to add several branches in the area.

Gateway Financial Holdings Inc. announced Tuesday the formation of Gateway Financial Mortgage Inc.

The Raleigh, N.C.-based residential mortgage division will be in operation within the parent’s financial centers throughout Virginia and North Carolina effective June 1, 2006, according to the announcement.

Kevin W. Pack will serve as president and manage the operation, sales and secondary marketing of the mortgage company.

Summit Mortgage LLC, which recently acquired Gateway Mortgage Bankers of Miami, continued its expansion plans in Florida with the opening of a fourth branch in the state.

The Boston, Mass.-based lender, which reportedly funded over $1.2 billion last year, said the new branch in Boca Raton adds 12 employees to the staff of 45 it has in the Sunshine State.

New Century Financial Corp. recently signed a seven-year business-process outsourcing agreement with Accenture for human resources and procurement services.

“This engagement with Accenture will help us to better focus on our core business strategy by becoming the industry’s low-cost provider and investing in growth opportunities for our people — who are our true competitive advantage,” New Century said.

Under the agreement, Accenture will reportedly perform recruitment, payroll, leave and absence management and human resource call center services for the Irvine, Calif.-based lender. Accenture will also manage a full suite of New Century’s procure-to-pay functions such as negotiating contracts with suppliers for goods and services, order processing, and travel and expense processing.

Mortgage-backed securities player Merrill Lynch & Co. is preparing for its biggest expansion since the 1990s, with the acquisition of a mortgage lender among its plans to achieve the extension, according to Bloomberg, which noted Merrill declined to name potential targets.

Over the past six months, the investment banker’s top management reportedly discussed how excess capital should be spent and decided against expanding by buying a consumer bank.

“What’s new is an increased emphasis on building our institutional business,” Chief Administrative Officer Ahmass Fakahany reportedly told Bloomberg. “When I say mortgage origination will take capital, that’s because it requires an acquisition.”

In March 2005, Merrill stepped further into the mortgage industry with its decision to offer jumbo mortgages on a correspondent basis.

Morgan Stanley is searching aggressively for mortgage origination and mortgage servicing operations to acquire, Chairman and Chief Executive John Mack reportedly said Monday at a UBS AG conference in New York. In addition to mortgages, “We are looking at a whole range of ‘bolt-on’ acquisitions and add-ons” of teams, MarketWatch reported him as saying.

Troubled ECC Capital Corp. indicated it may opt to merge with another company.

Within the past three months, ECC eliminated 170 employees, significant reduced executive compensation and canceled dividends payments.

President and co-Chief Executive Shabi Asghar recently said in addition to the cost cutting, ECC would pursue a “parallel path” by having an investment bank present it with strategic alternatives. He declined to say what was under consideration but said the process was in the “very preliminary” stage, according to the Los Angeles Times.

While whittling down the loss to $6.4 million in the first quarter, the Irvine, Calif.-based lender, which is looking at converting from a REIT to a C Corporation, noted it would not pay a dividend for the second quarter.

ECC isn’t the only subprime lender to make recent overtures about a white knight.

Los Angeles-based Aames Investment Corp. said, “There is a significant probability that it will enter into a definitive agreement” with a potential suitor during the second quarter.

The disclosures from ECC and Aames were preceded by Fortress Investment Group LLC’s planned acquisition of Centex Home Equity Co. LLC., a Dallas-based subprime lender.

Meanwhile, on the West Coast, the launch of Sage Credit Co. was recently announced.

The Irvine, Calif.-based company, which is licensed in all 50 states and already has branches in place in Orange County, Sacramento, San Diego, as well as Las Vegas, Nev., and New Jersey, plans to expand to 40 locations by the end of the second quarter.

Sage projected it will fund more than $1.7 billion in its first year of business and expand to over $5.6 billion annually by the third year.

Coco Salazar is an assistant editor and staff writer for

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