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Bankruptcies Burgeon, Credit Lines Negotiated

Bankruptcies Burgeon, Credit Lines Negotiated

Recent corporate activity in mortgage lending

August 14, 2007


photo of Coco Salazar
A number of recent bankruptcy cases have been filed by nonprime lenders — including one that is allegedly using pledged collateral to fund business operations. But the turmoil hasn’t stopped one company from buying discounted loans nor has it stopped another from renewing its credit lines.

But first, the Office of the Comptroller of the Currency announced it recently took 18 enforcement actions against national banks and individuals currently and formerly affiliated with national banks. Eleven of the 18 actions issued from May 11 to July 24 were terminations of existing enforcement actions.

The rest included a cease and desist order against the First National Bank of Lindsay, a formal agreement with ANB Financial N.A., and five removal/prohibition orders against Sarkis Azaian from California National Bank, Oliver O. Chukwuma of Valley National Bank, Kelvin Diaz of Bank of America, Oliver O. Chukwuma of Fleet National Bank and Brian L. Robinson of Powell Valley National Bank.

Impac Mortgage Holdings Inc. has delayed filing its second quarter financial report, according to a filing Friday with the Securities and Exchange Commission. The reasons cited for the postponement were “recent volatility and disruptions in the mortgage and secondary markets,” as well as more time needed to integrate information from its May 2007 acquisition of some assets and liabilities. Impac, a once primarily Alt-A lender that for the moment has switched its focus to conforming lending, reported a second quarter net loss of $152.5 million, compared to net earnings of $26.4 million a year earlier.

As Impac, IndyMac Bank and others look to increase conforming production, the Office of Federal Housing Enterprise Oversight is holding off on increasing the in the limit of loans Fannie Mae and Freddie Mac can hold in their portfolios, the regulator said in a letter to Senator Charles E. Schumer.

The government-sponsored enterprises’ “portfolio caps were put in place last year because of their serious safety and soundness issues” and their “continued lack of timely financial reports is a particularly troubling issue in unsettled markets,” OFHEO said in the letter. Instead, the regulator encouraged Fannie and Freddie to continue increasing their securitization activities, as these have no limits and “the Enterprises are able to securitize and guarantee over five times as many mortgages as they can if they retain those mortgages in their portfolio.”

Aegis Mortgage Corp. filed for Chapter 11 bankruptcy protection to address financial challenges brought on by the “extreme and unprecedented” conditions in the secondary mortgage and real estate marketplace, including accelerated demands for capital, the company announced yesterday. Aegis stopped taking loan applications on Aug. 3.

“We are deeply disappointed that the rapid decline in market conditions compelled us to take this action,” Aegis said in the announcement.

American Home Mortgage Investment Corp., another entity that recently filed for Chapter 11 bankruptcy protection, is being sued by Harwood Feffer LLP on behalf of investors who purchased common stock on July 26 and July 27 and shares from the secondary offering on April 30, 2007. The complaint alleges the company and its chief executive, Michael Strauss, issued numerous materially false and misleading statements that caused its securities to trade at artificially inflated prices.

JPMorgan Chase Bank is threatening to foreclose on a $68 million facility issued last November to HomeBanc Corp., which filed for relief under Chapter 11 in a bankruptcy court in Delaware last week with “little warning and without discussing any agreements for the use of cash collateral or adequate protection,” according to a JPMorgan filing with the Delaware court.

JPMorgan said HomeBanc may only use cash collateral with the consent of the creditor, or if it establishes to the court’s satisfaction that the creditor is adequately protected. JPMorgan believes HomeBanc is using and intends to continue using the collateral to continue running business, which makes the collateral subject to diminution. A hearing on the matter was scheduled for today.

J.P. Morgan Securities Inc. worked with nine banks to renew a credit line for Ocwen Financial Corp. that will increase to $350 million from the previous amount of $300 million with six banks. Members of the upsized line, which is being renewed prior to maturity of the existing line, includes JPMorgan Chase, Sovereign Bank, CIT Group, U.S. Bank, Wachovia, Commerzbank AG, Fifth Third Bank, Scotia Bank and SunTrust.

Hanover Capital Mortgage Holdings Inc. entered into a repurchase transaction with RCG PB Ltd., an affiliate of Ramius Capital Group LLC. The transaction, which involves Hanover’s seasoned prime first lien residential mortgage backed securities, will assist Hanover by replacing substantially all of its uncommitted repo lines with a fixed one-year repurchase agreement, according to an announcement.

One company capitalizing on the turmoil in the mortgage origination and securitization markets is Franklin Credit Management Corp. During the second quarter, the company purchased $311 million of pools of one- to four-family loans at an average discount of 16 percent, according to an announcement.

Coco Salazar is an associate editor and staff writer for

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