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Execs, Boards Struggle in Chaotic Environment


Execs, Boards Struggle in Chaotic Environment

Recent mortgage mergers, acquisitions and corporate activity

August 24, 2007


photo of Coco Salazar
As mortgage banking firms struggle with liquidity and access to capital, a wave of investor lawsuits are being filed. Meanwhile, one mortgage insurer is boasting about how the mortgage crisis is helping its business and two mortgage mergers are in the works.

But first, the Federal Deposit Insurance Corp. announced it processed 15 orders of administrative enforcement actions taken against banks and individuals in June. These included three cease-and-desist orders against Orange Community Bank, Alliant Bank and Mutual Community Savings Bank; eight civil money penalties, one termination of insurance; and three terminations of cease-and-desist orders.

Fitch announced it downgraded ResCap’s Issuer Default Rating to BB+ from BBB and placed it on Rating Watch Negative, a move that affected $17.8 billion of debt. While the actions mainly reflect the market disruption, Fitch said it has been concerned with ResCap’s weak operating performance — which has been noticeably worse than peer companies — and how its liquidity and capital levels may be affected through market illiquidity for nonconforming mortgages.

The ratings of IndyMac Bancorp Inc. and related subsidiaries were also placed on review for possible downgrade, Fitch reported, noting that the previously-mainly-Alt-A lender can continue to operate by originating and selling conforming production, but this platform may not be sustainable and eventually have an impact on performance.

Luminent Mortgage Capital Inc. is being sued for allegedly misleading investors about its business and financial results, Dreier LLP announced. The class action is on behalf of common stock purchasers during Oct. 10, 2006, through Aug. 6, 2007. On the latter date, the real estate investment trust announced it was experiencing a significant increase in margin calls on its highest quality assets and a decrease on the financing advance rates provided by its lenders, which the next day resulted in a 75 percent decrease in its per-share price to $1.08.

Alleged false and misleading statements that artificially inflated stock also led Wolf Haldenstein Adler Freeman & Herz LLP to file a class action lawsuit against Thornburg Mortgage Inc. on behalf of common stock purchasers between Oct. 6, 2005, and Aug. 17, according to an announcement. The lawfirm noted Thornburg’s recent exit from funding loans, sale of $20.5 billion of its top-rated mortgage backed securities to boost liquidity and its inability to repay $8.4 billion of commercial paper outstanding as of June 30.

Kenneth Z. Slater, manager of KT Investments LLC is also suing Thornburg, claiming it inflated its stock price of through misleading statements about its financial situation. Thornburg, also a REIT allegedly failed to disclose increasing margin calls, diminished available leverage and deteriorating financial conditions. The company delayed payment of its second quarter dividend and disclosed that book value of its mortgage-securities portfolio had fallen to $14.28 per share as of Aug. 13 from $19.38, according to suit filed in the U.S. District Court in New Mexico.

Tzivia Brody, Esq. also announced a class action against Thornburg on behalf of investors.

Beazer Homes USA Inc. is suing U.S. Bank N.A. to prevent the bank from declaring Beazer in default on $1.38 billion in loans and accelerating repayment. U.S. Bank has allegedly threatened to declare a default if Beazer doesn’t file its latest financial results by today with the SEC — 15 days after the due date. But Beazer argues that indenture terms do not require Beazer to file reports with the SEC by any particular date, only that copies of the results be delivered to U.S. Bank within 15 days after being filed with the SEC. Beazer is late in filing because, over the course of an internal investigation of its mortgage origination business, it found accounting entries in prior periods may need to be restated.

European-based mortgage investment company Carlyle Capital Corp. said it received a $100 million loan commitment from its parent, Carlyle Group, to meet margin calls. Carlyle Capital had drawn down $10 million from the one-year loan, which has a 10 percent interest rate and is subordinated to its other indebtedness.

Carlyle Capital said that even though “nearly 95% of its underlying assets are AAA mortgage-backed securities with the implied guarantee of the U.S. government, the fair value of these assets has declined due to diminished demand for these securities in the market.”

Current conditions, however, are benefiting The PMI Group Inc. as the migration to federally-insured mortgages and tax deductibility on private insurance has increased demand for its product. Among the general characteristics of PMI’s U.S. mortgage insurance portfolio as of June 30 were that prime loans represent 91 percent and fixed-rate loans account for 84 percent of primary risk in force, approximately 88 percent of loans are for primary residences and the portfolio is well diversified across all 50 states, according to a news release.

On Wednesday, the stockholders of MAF Bancorp Inc. reportedly approved for the company to be acquired by National City Corp. The previously announced $1.9 billion deal is expected to close next quarter.

BB&T Corp. announced it will become one of the largest full-service commercial and multifamily mortgage bankers in the country with its planned acquisition of Collateral Real Estate Capital LLC.

Under a new name, the combined company of Collateral with BB&T’s existing commercial arm, Laureate Capital LLC, is projected to originate more than $9 billion in loans this year and create a servicing portfolio of more than $20 billion. The deal, expected to be completed in the fourth quarter, will expand BB&T’s commercial mortgage operation into certain markets in Wisconsin, Texas, Florida, Minnesota, Illinois, and Ohio.


Coco Salazar is an associate editor and staff writer for

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