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Bankruptcy, Litigation Dominate Market

Bankruptcy, Litigation Dominate Market

Recent mortgage related mergers, acquisitions and corporate activity

August 21, 2007


photo of Coco Salazar
Bankruptcy activity, massive secondary loan sales and a crumbling acquisition deal overshadowed the latest mortgage mergers, acquisitions and other corporate activity. Several mortgage firms saw their debt ratings downgraded while a number of law firms are busy with growing mortgage litigation.

Astoria Financial Corp. recently announced Monte N. Redman will replace George L. Engelke Jr., as president. Engelke remains chairman and chief executive. Frank E. Fusco was appointed chief financial officer.

Global 1 Investment Holdings Corp. issued an announcement stating it will acquire the assets of an unnamed mortgage lender in Chap. 11 that has a servicing operation and portfolio of funded but unsold mortgages. Global intends to integrate its financial platform into the new company, obtain a new symbol, apply for a NASDAQ or NYSE listing, and raise funding through an offering.

Hahn & Hessen LLP, which currently represents creditors in the bankruptcy cases of New Century Financial Corp. and ResMAE, said it was selected as creditor counsel in American Home Mortgage Investment Corp.’s Chapter 11 bankruptcy case. The firm noted American Home’s case is similar to New Century’s in that there are currently motions to sell the servicing platform on an expedited basis and to establish procedures for selling other financial assets the lender may own.

Pennsylvania-based American Home Bank N.A. issued a statement in which it emphasized it is a well-capitalized national bank and is not affiliated or associated in any way with American Home Mortgage.

Hanover Capital Mortgage Holdings Inc. announced it notified the SEC it would be late filing its Form 10-Q for the second quarter until Monday because it had to re-examine its position regarding fair value declines in its for-sale portfolio of subordinate MBS collateralized by prime mortgage loans. The lender also delayed its second quarter earnings announcement until today.

Meanwhile, Fannie Mae was commended by its regulator, the Office of Federal Housing and Enterprise Oversight, for filing its 2006 annual report on Form 10-K with the SEC.

Countrywide Financial Corp. released a statement Friday reassuring depositors of Countrywide Bank that mortgage market turmoil does not impact the safety of their deposits insured by the Federal Deposit Insurance Corp.
The move was an apparent response to investor jitters over the possibility of a bankruptcy for the biggest U.S. lender raised by a Merrill Lynch analyst.

A few days earlier, Scott & Scott LLP announced it filed a class action against Countrywide on behalf of common stock purchasers between Oct. 24, 2006 and Aug. 9, 2007 alleging the Calabasas, Calif.-based misled investors. Another law firm, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, said Monday it was also suing Countrywide on behalf of shareholders going back to Jan. 2006.

Fitch Ratings’s lowered ratings for Countrywide’s long-term Issuer Default Rating to BBB+ from A, a statement Thursday said.

Fitch additionally downgraded Residential Capital LLC’s long-term IDR to BB+ from BBB and placed IndyMac Bancorporation Inc. on Rating Watch Negative. The actions reflected “unprecedented disruption in the capital markets, which has severely reduced liquidity for mortgage-centric entities,” Fitch announced.

Thornburg Mortgage Inc.’s unsecured debt and preferred stock was also downgraded by the New York ratings agency for similar reasons, Fitch said Monday. A rash of margin calls following a decline in the market value of the real estate investment trust’s adjustable-rate mortgage-backed securities and liquidity concerns were cited.

Newly-formed Chimera Investment Corp. plans to do an initial public offering to raise $250 million, the Maryland corporation said in an SEC filing. With intentions to be classified as a real estate investment trust, the company will invest in mostly prime and Alt-A residential loans, mortgage-backed securities and real estate-related securities and various other asset classes.

In the secondary mortgage market, a discount sale of a substantial portion of Belvedere Mortgage Trust Corp.’s MBS portfolio is likely in order to satisfy lender repurchase requests, parent company Anworth Mortgage Asset Corp. announced earlier this month. Belvedere received a notices of default from two of its repurchase agreement lenders and substantial margin requests from several of its repurchase agreement lenders.

Friedman, Billings, Ramsey Group Inc. reported Monday it sold nearly $5 billion in agency mortgage-backed securities at a $57 million loss — leaving it with just a $1.2 billion MBS portfolio. The move was made to reduce leverage during the current turmoil and free up cash for future investments.

Accredited Home Lenders Holding Co. announced today it unloaded $500 million in loans and plans to unload another $500 million by October. The deal, which will reduce margin call exposure, gives Accredited the right to purchase the loans back within 90 days.

The struggling subprime lender received its third deficiency notice from NASDAQ last week over its delayed second quarter financial report.

In addition, an affiliate of Lone Star Fund V filed a response to a lawsuit by Accredited that seeks to force the investment firm to complete its acquisition of Accredited. Lone Star claims the San Diego-based mortgage banker has not met the conditions of their merger agreement because it has breached numerous obligations and “suffered a material adverse effect.”

Fifth Third Bancorp intends to enter the Charlotte, N.C., market by acquiring First Charter Corp. in a $1.09 billion stock-and-cash deal expected to close in the first quarter 2008, according to an announcement. The merger will also add to Fifth’s small pending presence in Georgia, which it will enter though the pending acquisition of R-G Crown Bank.

Bankers Financial Mortgage Group Ltd. has agreed to sell substantially all of its assets and loan origination business to ViewPoint Bank. The deal between the two Texas-based companies calls for an initial $1.2 million in cash and the possibility for additional cash payments in the future based on a four-year performance of Viewpoint’s subsidiary, Community Financial Services Inc. Dallas-based Bankers originates over $350 million annually in mortgages, focusing on conforming, agency- acceptable loans, Plano-based Viewpoint said.

Coco Salazar is an associate editor and staff writer for

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