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Corporate Maneuvers

The boardrooms of mortgage-related corporations have been busy dealing with stock exchange listings, capital conservation and legal actions. Large losses continued to plague the sector, while a failed bank was taken over and another firm was spun off.

Hanover Capital Mortgage Holdings Inc. said earlier this month that its second-quarter loss doubled from a year earlier to $23 million. Losses were primarily due to an increase in mark-to-market losses on mortgage assets net of free standing derivatives and a significant increase in interest costs to finance its primary portfolio of subordinate mortgage-backed securities.

Moody’s Investors Service downgraded the preferred stock ratings and bank financial strength ratings of Fannie Mae and Freddie Mac on Friday. Moody’s explained the two government-sponsored enterprises’ financial flexibility to manage potential volatility in its mortgage risk exposures is constricted.

Moody’s noted Fannie and Freddie have limited access to common and preferred equity capital at economically attractive terms, though both GSEs have seen their common shares rise yesterday and today as a result of Freddie’s well received debt offering.

An investor class action against Freddie was announced last week by Roy Jacobs & Associates. The case, filed in U.S. District Court for the Southern District of New York, was filed on behalf of purchasers of Freddie’s stock from Nov. 21, 2007, to Aug. 5, 2008. It alleges the McLean, Va.-based company deceived investors about the soundness of its mortgage portfolio, its underwriting standards and the adequacy of its capital.

Wachovia Corp. announced earlier this month that it reached an agreement in principle for a global settlement with the North American Securities Administrators Association task force investigating the marketing and sale of auction rate securities. The settlement will result in a $50 million fine, a second quarter $500 million pre-tax increase to legal reserves and another $275 million in legal reserves in the third quarter.

An announcement Thursday from Impac Mortgage Holdings Inc. disclosed a warning from NYSE Regulation Inc. that it was again not in compliance with the New York Stock Exchange’s continued listing standard due to its 30-day average share price falling below $1 for the second time in 12 months.

Franklin Bank Corp. received notices of non-compliance from the The NASDAQ Stock Market and the American Stock Exchange Inc. At issue is the Houston-based company’s failure to file its second-quarter 10-Q with the Securities and Exchange Commission.

Franklin Credit Management Corp., which is unrelated to Franklin Bank, said yesterday it received a warning from the NASDAQ Stock Market that its shares would be suspended from the exchange on Aug. 29 unless it submits an appeal. The chief financial officer of the New York-based company said it expects to make an appeal and “will make every reasonable effort to have our stock listed on the OTCBB to ensure that there is a market for Franklin’s stock should our appeal to remain on the NASDAQ Capital Market be denied.”

Huntington Bancshares Inc., which has a $1.1 billion commercial lending relationship with Franklin Credit, warned recently that Franklin expects to report a second-quarter loss of around $283 million over a higher provision for credit losses. Huntington’s chairman and CEO, Thomas E. Hoaglin, said Franklin’s losses don’t “have any impact on our reported reserve level.”

Huntington also noted that Franklin is evaluating the legal structure of its servicing platform as a result of the loss, prompting a modification to Franklin’s financial performance covenants from its original restructuring agreement with the bank group to terms that are “more appropriate to their current situation.”

NovaStar Financial Inc. said in a recent SEC filing that it still faces substantial liquidity risk, and near-term uncertainty threatens its ability to continue as a going concern and avoid bankruptcy. Its cash balance fell $15 million during the first half of 2008 as it lost $168 million.

Citizens Bank and Trust, Chillicothe, Mo., assumed Friday the insured deposits of The Columbian Bank and Trust Co., Topeka, Ks. — of which the Federal Deposit Insurance Corporation has taken receivership. FDIC said nine Columbian branches would open yesterday as Citizens Bank and Trust.

Columbia had total assets of $752 million and total deposits of $622 million, including around $46 million in uninsured deposits. Another $268 million in brokered deposits were not part of the deal.

On Aug. 7, Columbian had entered an agreement with the Federal Reserve Bank of Kansas City to conserve capital.

LendingTree was spunoff from IAC and now trades on the NASDAQ under the symbol LEND, an announcement Thursday said. The statement noted that in addition to providing mortgage lead services, LendingTree originates, processes, approves and funds under the brands LendingTree Loans and HomeLoanCenter.com.

Jino Kuriakose, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. Federal Home Loan Mortgage Company, Richard Syron, Patricia L. Cook and Anthony S. Piszel
Civil Action No. 08 CIV 7281, Aug. 18, 2008 (U.S. District Court, Southern District of New York)

Written Agreement by and between Columbian Financial Corporation, Overland Park, Kansas, and Federal Reserve Bank of Kansas City, Kansas City, Missouri
Docket No. 08-017-WA/RB-HC (Board of Governors of the Federal Reserve System, Washington, D.C.)

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