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Despite Devastation, Some Firms Grow

Despite Devastation, Some Firms Grow

Recent mergers, acquisitions and other corporate activity in mortgage lending

August 2, 2007

By COCO SALAZAR

photo of Coco Salazar
Despite a turbulent market that has devastated subprime lenders — as well as the funds that had been investing in the riskiest slices of subprime mortgage securities, one company sees opportunities in buying the loans. Another mortgage firm continues to grow with the acquisition of mortgage branches in three states.

But first, the Federal Deposit Insurance Corp. recently released a list of orders of administrative enforcement actions taken against 23 banks and individuals in May. These included five cease-and-desist orders, two temporary cease-and-desist orders, four removal and prohibition orders, eight civil money penalties and four terminations of cease-and-desist orders. One of the cease-and-desist orders was against Coastal Bank of Florida, which announced in May that as part of a settlement with the FDIC, it hired Anne V. Lee to replace former CEO and President Brian F. Grimes. The order, which did not restrict it from engaging in banking, reportedly followed an on-site examination in which regulators found problems related to Coast’s residential construction-to-permanent loan portfolio.

At National City Corp., Peter E. Raskind was recently elected CEO, succeeding David A. Daberko, who remains as chairman until his retirement at yearend. Raskind has been president of the company since December 2006 and prior to this appointment was in charge of mortgage banking operations.

On Tuesday, IndyMac Bancorp Inc. suspended offering an earnings forecast upon reporting that second-quarter net earnings of $44.6 million were off 13 percent from the linked quarter and a whopping 57 percent below the level a year earlier. Among other things, the primarily Alt-A lender said its thrift segment experienced increased loan loss provisions resulting from a rise in nonperforming assets in its loan portfolios, and that its conduit business experienced a 37 percent quarterly production downturn and a $2 million loss due to increased credit costs and “current uncertainty with respect to secondary market spreads and execution.”

Conditions in the secondary market “have worsened in recent weeks due in large part to widely publicized issues with subprime-related hedge funds and other secondary market participants,”and “capital markets remain volatile and less liquid,” IndyMac said in an announcement. “Given the significant current uncertainties in the housing and mortgage markets and, in particular, in the secondary market, we feel it is prudent to temporarily refrain from our normal practice of providing quantitative guidance.”

HSBC Holdings incurred credit impairment charges of $760 million for the first half of the year in its North American mortgage services business, according to its interim earnings report Monday. The company noted, however, that it had written off loans of $715 million against allowances already raised, thus impairment allowances remained largely unchanged at $2.1 billion. HSBC additionally highlighted that the mortgage services business improved pre-tax profits due to steps it has taken to reduce loss exposure within the correspondent channel, such as ceasing the underwriting of subprime mortgages. It also cited it has made changes to better serve or reach out to borrowers facing interest rate resets in the coming months.

American Home Mortgage Investment Corp. had a class action suit filed against it by Lerach Coughlin Stoia Geller Rudman & Robbins LLP, according to an announcement. The suit is on behalf of purchasers of American Home securities between July 26, 2006 and July 27, 2007. The lender is accused of issuing materially false and misleading statements regarding its increased levels of loan delinquencies and difficulties in selling its loans, which depressed earnings, and by overstating financial results by failing to write-down the value of certain loans in its portfolio that had declined substantially in value.

Unable to borrow funds under its warehouse lines, American Home, primarily an Alt-A lender, has stopped funding mortgages.

Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd. and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd., the two troubled funds of Bear, filed for Chapter 15 bankruptcy protection on Tuesday, according to documents in a New York court.

The law firm of Klayman & Toskes, which said it is continuing investigating those two hedge funds for a possible lawsuit and has received numerous informational responses as far away as Tokyo and London, announced it is also looking into Bears’ Asset-Backed Securities Fund, a third hedge fund that has reportedly been facing tremendous losses and may be in jeopardy.

Bear has prevented investors from pulling money out of that third hedge fund, which has about $850 million in mortgage investments, according to the Wall Street Journal. Unlike the two previous hedge funds, however, the Asset-Backed Securities Fund borrowed no capital and had practically no exposure to subprime mortgages.

The U.S. subprime crisis has claimed German lender IKB Deutsche Industriebank AG, which on Monday said it would not be able to maintain its earnings forecast for the 2007-2008 financial year after investor uncertainty led to its main shareholder, KfW, having to step in to safeguard IKB’s creditworthiness.

The ability of IKB’s managed Rhineland Funding conduit to access funding appeared to be threatened as the conduit and, to a lesser extent, IKB have invested in structured credit portfolios that have some exposure to U.S. subprime loans. KfW will assume IKB’s financial obligations under the liquidity facilities in relation to Rhineland and will protect IKB against risks resulting from certain portfolio investments.

“Despite market discounts affecting the valuation of such assets, to date there have been few loan defaults, and only some rating downgrades affecting portfolio investments,” IKB noted. “Nevertheless, towards the end of last week IKB’s creditworthiness was being questioned due to said exposures. There was a risk that this confidence crisis would deteriorate further.”

It has also been reported that France-based Oddo & Cie plans to close three funds totaling 1 billion euros, or $1.37 billion, due to the “unprecedented” crisis in the U.S. asset-backed securities market. Oddo did not reply to MortgageDaily.com’s request for comment before press time.

Blackburne & Brown Mortgage Company Inc., a hard-money commercial mortgage lender, has announced it is up for sale at an asking price of $5 million. A $2 million cash down payment is required, with $3 million financed for five years at 12 percent.

Revenues are generated from loan fees, typically 2.5 percent, and 190 basis points in servicing fees on a $45 million portfolio.

“We get our lending funds from accredited and near-accredited private investors residing in California,” the California-based company said in an e-mail offering. “These loans are almost always fractionalized, meaning that we will usually place 10 to 30 different private investors per loan.”

The recent meltdown in the subprime sector seems to be favoring Oxford Funding Corp., which says such environment provides an “exceptional” opportunity to buy mortgages at substantial discounts. Oxford announced it will be buying from an unnamed nationwide lender a $3 million portfolio of underperforming loans at a substantial discount to market. Oxford, which rehabilitates portfolios it acquires before selling them at a profit, will evaluate and underwrite the loans prior to closing the deal.

“We expect this to be a highly profitable acquisition for the company,” Oxford CEO Ronald Redd. “In addition, we are hoping to make a series of additional portfolio acquisitions from this nationwide lender over the next several months.”

The portfolio deal comes just weeks after the Houston, Texas.-based company said it will acquire commercial and residential mortgage broker Huntington Financial and facilitator of hard-money and traditional financing San Felipe Commercial Mortgage.

Main Street Home Mortgage announced today it has acquired several mortgage branches in Illinois, Indiana, and South Carolina. The company focuses on borrowers with good credit and programs including government, conforming and Alt-A.

“The addition of the newly opened retail offices is consistent with Main Street Home Mortgage’s ongoing strategy of building quality originations both through acquisitions and organic growth,” John Morelli, an executive for the company, said in the announcement.

 

Coco Salazar is an associate editor and staff writer for MortgageDaily.com.e-mail: MortgageWriter@aol.com


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