With almost $4 billion more in subprime related charges announced yesterday by two financial giants, investors are becoming extremely litigious. But one mortgage company acquisition did manage to close.
But first, Accredited Home Lenders Holding Co. announced it filed a FORM 15 with the Securities and Exchange Commission, beginning the de-registration of preferred shares and the Guarantee under the Securities Exchange Act of 1934.
Moody’s Investors Service changed its rating outlook on B.F. Saul Real Estate Investment Trust and subsidiary Chevy Chase Bank F.S.B. to negative from stable because of deteriorating prospects for their financial metrics resulting from the stress Chevy Chase’s mortgage banking business is experiencing. Chevy’s profitability has trailed that of peers due to a comparatively high overhead ratio for some time, and more recently has suffered because of the disruption in the non-conforming residential mortgage-backed securities market, the ratings agency said.
Former Freddie Mac Chairman and Chief Executive Officer Leland C. Brendsel will disgorge $10.5 million of previously paid salary and bonuses as part of his consent to an order in settlement of an administrative enforcement action by the Office of Federal Housing and Enterprise Oversight, the regulator announced. He also agreed to pay the government $2.5 million and waive claims against Freddie for additional compensation of $3.4 million. OFHEO alleged Brendsel failed to have adequate internal controls for accounting and allowing improper earnings management that led to Freddie operating in an unsafe and unsound manner.
Kaplan Fox & Kilsheimer LLP announced it is suing Countrywide Capital V , and Countrywide Financial Corp. and certain executives on behalf of all who purchased CCV preferred stock in connection with a Nov. 1, 2006, initial public offering through Aug. 9, 2007. The law firm alleges Countrywide made materially false statements about its business and financial condition.
Hagens Berman Sobol Shapiro LLP is the latest law firm to announce class action litigation against Washington Mutual Inc. for alleged federal securities law violations. The firm, which represents purchasers of WaMu common stock during April 18, 2006, through Nov. 1, 2007, accuses WaMu of artificially inflating mortgage underwriting and origination volume, under-reporting its true costs, failing to take adequate reserves for mortgages, engaging in a conspiracy to inflate property appraisals that served to manipulate accounting for revenues.
Ameriquest Mortgage Co. will pay $1 million to settle charges that it violated National Do Not Call Registry law when its telemarketers called consumers on the registry whose numbers had been obtained from third-party lead generators, the Federal Trade Commission announced. Lead generators enticed consumers to provide their contact information through Web sites that offered information on financial and other products. The calls to registered numbers were illegal because consumers on the lead lists were not reaching out to Ameriquest in particular and, thus, Ameriquest had not develop an established business relationship with them. The company allegedly also ignored consumers’ requests to be placed on its entity-specific do not call list.
Ameriquest, which has wound down operations, also agreed to have lead generators it uses disclose to consumers, before they provide contact information, that they will receive a phone call, the maximum number of sellers who may contact them, and possibly what seller might call them as a result of their inquiry, the FTC said.
In a regulatory filing Wednesday, Merrill Lynch & Co. said the SEC began an inquiry on Oct. 24 into “matters related” to its subprime mortgage portfolio.
The filing comes after Merrill’s response announcement Friday to an article in The Wall Street Journal that cited unidentified sources and “speculated about inappropriate transactions that ‘may have been designed’ to avoid write-downs that ‘might have been’ required earlier in the year.”
“We have no reason to believe that any such inappropriate transactions occurred,” Merrill added in Friday’s announcement. “Such transactions would clearly violate Merrill Lynch policy.”
Citigroup Inc. appointed Rick Stuckey as head of its newly formed subprime portfolio group, which will be responsible for managing the company’s remaining asset-backed securities collateralized debt obligation warehouse assets, unsold primary ABS CDO inventory and ABS super senior exposures, according to an employee memo. The creation of the group follows Citi’s announcement Sunday that net income for the fourth quarter may be reduced by as much as $7 billion due to declines in the fair value of about $55 billion in U.S. subprime-related exposures in its lending and structuring business and CDO senior tranches.
Coughlin Stoia Geller Rudman & Robbins LLP announced a class action has been commenced against Citigroup Inc. The case, filed in the U.S. District Court for the Southern District of New York, is on behalf of investors of common stock from April 17, 2006, and Nov. 2, 2007.
Citigroup issued materially false and misleading statements about its results, the lawsuit alleges. Collateralized debt obligations held billion of dollars in subprime-securities, though Citigroup allegedly “failed to properly account for highly leveraged loans such as mortgage securities … failed to record impairment of debt securities which they knew or disregarded were impaired.”
American International Group Inc. said Wednesday that net income fell 27 percent annually to $3.09 billion. Earnings were affected by a $229 million charge for a net unrealized market valuation loss related to its super senior credit default swap portfolio — and it expects to write down an additional $550 million in this portfolio next quarter. The insurer lost $149 million related to the RMBS portfolio. Plus, the company also saw $2.45 billion after-tax in unrealized depreciation of investments that was not reflected in earnings. The write downs are reportedly related to subprime mortgage exposure.
Also on Wednesday, Morgan Stanley announced a $3.7 billion write-down of its U.S. subprime assets in the fourth quarter is expected to reduce net income by as much as $2.5 billion. The investment banker indicated the write-down resulted from exposure to subprime assets that declined in value to $6 billion as of Oct. 31 from $10.4 billion as of Aug. 31. The remaining $6 billion in net exposures would be the most it could lose in a worst-case scenario.
NovaStar Mortgage Inc. finalized the sale of its mortgage servicing rights and securitization servicing advances to Saxon Mortgage Services Inc. on Nov. 1 for $147.1 million in net cash, according to an 8-K filing with the Securities and Exchange Commission. NovaStar will receive an additional $7.9 million in cash upon delivery of all closing documents. Of the total proceeds, $21.5 million will be retained for working capital purposes and the rest will be used to pay down debt.
In connection with the deal’s closing, NovaStar’s $80 million servicing advance facility with Deutsche Bank and its $60 million servicing rights facility with affiliates of Wachovia Bank were paid in full and terminated, and certain employees received cash bonuses, which included a $50,000 bonus for NovaStar Chief Financial Officer Greg Metz, the filing said.
Myers Park Mortgage announced it bought Fidelity Capital Mortgage Co. from Keystone Builders for an undisclosed price. The acquisition of Fidelity, which does about $50 million in annual volume, gives Myers a retail presence in Virginia, where it previously only conducted wholesale business.
With an annual loan volume of approximately $50 million, Fidelity generates approximately half of its business within Keystone’s 20 real estate development projects in Virginia, North and South Carolina, Tennessee and Indiana. The deal gives growing Myers Park Mortgage a retail presence in Virginia, a state in which the company has conducted wholesale mortgage business for four years.
