An agreement by H&R Block to sell its ailing mortgage unit Option One to Cerberus Capital Management has been severed, according to both parties involved.
Both companies called the termination “fully amicable”, though Option One will wind down operations as a result.
H&R Block will lay off approximately 620 employees, close three offices, and take a $75 million restructuring charge.
Option One will no longer accept loan applications, but will continue to service the existing pipeline totaling about $30 million, most of which are government-backed loans (FHA loans, VA loans).
The defunct mortgage lender also plans to sell its valuable servicing portfolio.
Both parties said they had tried to find a way to save the deal originally conceived in April, but couldn’t find a mutually acceptable agreement.
“The mortgage market today has undergone vast changes since last April when the original Cerberus deal was signed,” H&R Block Chairman Richard Breeden said in a statement.
“Despite the hard work and good faith of both sides we could not find a way to restructure the original transaction to mutual satisfaction.”
Two weeks ago, H&R Block president and CEO Mark Ernst resigned as the prospect of selling its money-losing subprime mortgage unit looked increasingly bleak.
The proposed sale of Option One to private equity firm Cerberus Capital for $800 million (formerly $1 billion) agreed upon earlier this year was largely expected to fizzle as the credit markets continued to breed uncertainty.
Cerberus already backed out of a deal to buy Affiliated Computer Services Inc., and is currently attempting to withdraw its offer for United Rental.
According to National Mortgage News, Option One made $29.8 billion in subprime loans last year.
Shares of H&R Block were down 5 cents, or 0.26%, to $19.41 in midday trading on Wall Street.
Check out the latest list of closed lenders, mortgage layoffs mergers, and rumors.
A cohort of former employees at now-defunct reverse mortgage lender Live Well Financial has been granted final settlement approval in a class action lawsuit brought against the company’s estate in May 2019.
Monica Williams, a former loan account manager in Live Well’s Richmond, Va. headquarters, initially filed the suit days after Live Well had halted funding for new loans and subsequently ceased operations entirely.
“After reviewing the terms of the settlement agreement, the court has determined that the legal and factual bases [outlined] in the motion establish just cause for the relief granted herein,” the order reads based on court filings reviewed by RMD.
The class action lawsuit was filed in the U.S. Bankruptcy Court for the District of Delaware seeking 60 days of wages and benefits, alleging termination without cause and notice as required by law. Live Well initially announced its intent to challenge the suit a month after its filing.
Williams brought the suit on behalf of herself and other former Live Well employees who were terminated “without cause, as part of, or as the result of, mass layoffs or plant closings ordered by [Live Well] on or about May 3, 2019,” the initial court complaint said.
After dragging on for the better part of four years while an adjacent criminal case against former executive leaders was playing out in the U.S. Southern District Court of New York, the class in the Delaware suit received pending approval for a $1.1 million settlement last November.
At that time, attorneys for Williams and the class at large said the figure “provides for payment more than sixty-six (66) percent of the maximum priority [Worker Adjustment and Retraining Notification (WARN)] damages and eliminates any further accrual of litigation expenses in prosecuting the action against [Live Well], including trial and possible appeals.”
In a 92-minute court hearing held on Jan. 18, presiding Judge Laurie Selber Silverstein gave final approval for the settlement to Williams’ attorneys and David Carickhoff, the Chapter 7 bankruptcy trustee overseeing the estate of Live Well Financial.
Alongside the preliminary approval, court filings indicated that the settlement would cap the payment at $13,650 per employee. This included all counsel fees and expenses, making the class consist of roughly 81 people. A class of 125 people was initially estimated when the suit was filed in 2019.
RMD reached out to attorneys for Williams but did not hear back before this article was published.
This is the latest chapter in the saga of Live Well Financial. The government indicted three former company executives over what prosecutors called a reverse mortgage bond pricing scheme, with the company’s former CFO and former portfolio manager avoiding prison time after consideration of their cooperation with authorities.
A dispute over restitution continues to play out in court between the government and counsel for the lender’s former CEO, who remains free on bond pending an appeal of a prison sentence.
An inside-the ballpark viewpoint As head of a digital closing platform for the mortgage industry, Sachdev is privy to the inner workings of numerous mortgage lenders. Given his perch, he revealed which of the two options – tech investment or staff cuts – is the better option. “I actually think that tech is the better … [Read more…]
Bear Stearns reported a larger-than-expected writedown in its mortgage portfolio, leading its first quarterly loss in its 84-year history.
The nation’s fifth-largest investment bank, who is also a mortgage lender, took a $1.9 billion writedown in the quarter ended November 30, significantly larger than its earlier estimate in November of $1.2 billion.
“The continued repricing of credit risk and the severe dislocation in the structured products market led to illiquidity in the fixed-income markets, lower levels of client activity across the fixed-income sector and a significant revaluation of mortgage inventory,” Bear Stearns said in the earnings release.
The fiscal fourth-quarter loss after preferred dividends was $859 million, or $6.90 per share, compared to a profit of $558 million, or $4 per share, a year ago.
The company reported negative net revenue of $379 million, compared to revenue of $2.41 billion a year earlier.
It’s likely 2007 is a year Bear Stearns would prefer to soon forget, as profit during the year fell 90 percent from the year-ago period to a meager $212 million.
“We are obviously upset with our 2007 results, particularly in light of the fact that weakness in fixed income more than offset strong and, in some areas, record-setting performance in other businesses,” Chief Executive Jimmy Cayne said in a statement.
Chief Financial Officer Sam Molinaro said during a conference call with analysts that the company cut 1,400 jobs, or about 9 percent of its workforce during the quarter amid ongoing turmoil in the credit markets.
The firm incurred $100 million in severance costs as a result of the layoffs, but they will offset operating costs by more than $250 million, helping to boost profitability in 2008, Molinaro added.
Earlier this week, Bear Stearns cut another 150 jobs as it shut down its loan production operations in Irvine, CA.
The company is also being sued by Barclays, who claims Bear Stearns hid negative information about the performance of two subprime hedge funds the English bank had invested in.
Shares of Bear were down 16 cents, or 0.18%, to $90.44 in late morning trading on Wall Street, just narrowly above their 52-week low of $89.55.
According to a report released today by Challenger, Gray & Christmas, the 153,105 job cuts in the financial sector announced last year beat the previous record set in 2001 by a hefty 31 percent and more than tripled the amount at the end of 2006.
In the mortgage sector alone, 86,126 jobs were cut during the year as the mortgage crisis shuttered hundreds of lending operations nationwide.
And despite the record numbers, Challenger expects more layoffs in the struggling financial sector in 2008.
“Job cuts in the financial sector declined in November and December, but major job-cut announcements may be on the horizon for Citigroup and Merrill Lynch,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas.
Last year, Citigroup announced that it would lay off roughly 17,000 employees and top mortgage lender Countrywide Financial cut at least 12,000 jobs.
“Furthermore, some experts are predicting that the credit crisis resulting from investments in subprime home loans will spread to those who invested in mounting consumer credit card debt,” Challenger added.
Overall, 768,264 jobs were cut in 2007, 8.5 percent less than the cuts announced in 2006 and the lowest since 2000, Challenger reported.
The 44,416 job cuts for the month of December were down by about 39 percent from November and down 18.7 percent from December a year ago.
After the financial services sector, the automotive industry saw the most layoffs in 2007, with 78,880 jobs cut, including 13,000 at Chrysler amid the automaker’s sale to private equity firm Cerberus Capital.
Challenger reported that the weakening dollar has led to high demand for U.S. exports, preventing the housing crisis from leading to widespread job losses in other sectors.
Notably, the largest job increases were observed in the government sector, with 52,000 jobs added, while healthcare followed closely with 38,000 new positions. These gains helped offset notable losses in transportation and warehousing, shedding 23,000 jobs and in social assistance, which saw a decrease of 21,000 positions. Mike Fratantoni, chief economist of the Mortgage Bankers … [Read more…]
According to an announcement posted on their website, First NLC Financial Services has ceased loan origination.
Per a bulletin on their website: “Due to conditions beyond our control, effective immediately we are no longer taking applications.
Those loans where closing documents have been executed will be funded in the normal manner.
Please call the number or email at the address listed below for additional information…561-962-6728.”
In late November, I was told by sources close to the company that First NLC planned to close 24 branches nationwide, shuttering their operations on the west coast and cutting more than 100 jobs in the process.
At that time, it was believed that only six retail branches would remain open, along with an operations center at its headquarters in Boca Raton, Florida.
First NLC was one of the top non-prime residential mortgage lenders in the nation, originating over $7.4 billion in mortgage loans in 2006.
In 2005, FBR bought the subprime lending unit for $101 million and arranged a sale last summer to an affiliate of private equity firm Sun Capital Partners.
Update: FBR said First NLC will file for Chapter 11 bankruptcy protection and plans to liquidate the company. It does not plan to recoup the $12 million investment it made in the failed lender, and does not plan to complete the proposed sale of the company.
Check out the latest list of closed lenders, layoffs, and mergers.
Failed mortgage lender NovaStar Financial said today that it will cut roughly 170 jobs, or 85 percent of its remaining staff, and give up both its mortgage-origination and brokerage business licenses.
The company, which will be left with about 30 employees after the latest cuts, said in an SEC filing that the reduction in staff is part of its plan to discontinue its retail and brokerage operations.
NovaStar noted that the discontinuation “may hinder or otherwise negatively affect the ability of the company to recommence a mortgage origination and mortgage brokerage business if market conditions improve.”
The Kansas City-based lender said the layoffs will result in a pre-tax charge of about $1.3 million to $1.8 million, mainly related to severance costs, with most of it realized in the first quarter.
Yesterday, the company said it had received another waiver from Wachovia Bank until February 4 to help it avoid defaulting on credit agreements.
It’s unclear to what extent the company is still operating, as a bulletin on their website reads:
“At present, we are no longer originating new loans, but we thank you for your interest and for considering us.
If you are a former customer, NovaStar Mortgage is no longer servicing any loans. You should have received a notice from both NovaStar and your new Servicer by now and will need to reference this material for their contact information.”
It is believed that the company may still be processing loans that were already submitted.
Shares of NovaStar were down 22 cents, or 6.71%, to $3.06 in late afternoon trading on Wall Street, far below their 52-week high of $97.64.
Check out the latest list of mortgage layoffs, closed lenders, mergers, and rumors.
Update: The New York Stock Exchange plans to delist the common and preferred stock for NovaStar Financial Inc. effective January 17.
The stock plummeted more than 40% in after hours trading on the news.
According to CNBC, Citigroup could announce a writedown as high as $24 billion when it reports fourth-quarter earnings Tuesday, more than doubling previous estimates.
The bank’s board is also expected to meet tomorrow to discuss a possible dividend cut, or even an outright suspension, a move Citi had previously said it would not make, but one that could save billions a year.
Additionally, as part of the massive restructuring plan, the New York-based bank and mortgage lender is expected to cut an estimated 20,000 jobs.
The struggling giant is also looking to raise as much as $15 billion from foreign and domestic investors, including Saudi Prince Alwaleed bin Talal.
Alwaleed, who assisted the bank during a crisis in the early 1990s, is Citigroup’s largest individual shareholder, holding a four percent stake in the company.
However, he is unlikely to raise his current stake beyond five percent to avoid regulatory headaches, the WSJ reported.
The Financial Times reported that Citi could also receive $9 billion from Chinese investors, and another $1 billion to $2 billion from The Kuwait Investment Authority.
In November, Citi obtained $7.5 billion in new capital from The Abu Dhabi Investment Authority, just weeks after former CEO Charles Prince was ousted.
At that time, the bank said it expected writedowns of just $8 to $11 billion, a far cry from recent analyst estimates of $15 to $18 billion.
According to a survey conducted by Bloomberg, analysts anticipate Citi to report a fourth-quarter loss of $4.21 billion.
Shares of Citi climbed 45 cents, or 1.60%, to $28.56 Friday on news the company was in talks to acquire new capital.
Check out the latest mortgage layoffs, closures and mergers.
Mortgage rates have plummeted in recent weeks, boosting the prospects of homebuyers previously stifled by high borrowing costs.
Many forecasters predict mortgage rates will drop further, however, since the Federal Reserve expects to cut its benchmark interest rate this year.
Those circumstances pose a quandary for buyers: Jump into a newly attractive market that promises thousands of dollars in gains or wait for the possibility of an even more favorable one.
Homebuyers would be well-served by a leap into the current market, since the movement of mortgage rates often proves difficult to predict and purchasers reserve the ability to refinance if rates continue to fall, experts told ABC News.
But that approach does carry risks, some experts added, noting the loss of additional time to pad one’s finances as well as the possibility of a decline in home value after the purchase if the market worsens.
“If you need to buy a property, go ahead and buy it,” Marti Subrahmanyam, a professor of finance and business at New York University, told ABC News. “Don’t try to time the market.”
Last year, mortgage rates reached their highest level in more than two decades.
But rates have declined sharply over the past few months. As of last week, the average interest rate for a 30-year fixed mortgage stood at roughly 6.6%, according to FreddieMac. That amounts to more than a percentage point drop from a peak reached in October.
Each percentage point decrease in a mortgage rate can take away thousands or tens of thousands of dollars in costs each year, depending on the price of the house.
The fall of mortgage rates coincided with an announcement from the Fed that it expects to cut interest rates this year by an amount equivalent to three quarter-point reductions.
Such plans would reverse a near-historic series of rate increases over the past year that sent mortgage rates soaring.
Mortgage rates closely track with 10-year treasury bond yields, which last month reached lows last seen in August. Those yields are highly sensitive to the Fed’s interest rate moves.
“Treasury rates are coming down — and as treasury rates come down, so will mortgage rates,” Susan Wachter, a professor of real estate at University of Pennsylvania’s Wharton School of Business, told ABC News.
Even though mortgage rates could continue to fall, experts said, it makes sense to jump into the market because shifts in rates often defy expectations.
“I would be wary of advising prospective homebuyers to delay their purchase in hopes of better terms in the future,” Julia Fonseca, a professor at the Gies College of Business at the University of Illinois at Urbana-Champaign. “It’s very hard to time the market.”
Lu Liu, a professor at the Wharton School at the University of Pennsylvania, echoed this view.
“Households should make their housing decisions in line with their needs,” Liu told ABC News. “It’s very hard to accurately predict long-term interest rates.”
Plus, experts added, homebuyers can opt to refinance their homes at relatively low cost if rates move further downward.
“It’s quite efficient to refinance,” Wachter said.
This approach does carry some downsides, however, some experts noted.
If homebuyers move quickly, they cut down the time available to add to their savings before taking on the significant expense of a mortgage.
Purchasers also run the risk of snatching up a house right before the market declines, in which case the home could lose value almost immediately.
“The risks are that housing prices may plummet,” Wachter said, noting that such an outcome would likely require a severe recession that triggers layoffs and tanks demand for homes.
Optimism has grown about the outlook for the U.S. economy, however. Experts widely expect the economy to slow but not shrink over the next year.
“That risk of significant declines in housing prices I believe is off the table,” Wachter said.
Ultimately, the decision to buy a house requires a case-by-case assessment of factors that extend well beyond borrowing costs, some experts said.
“Whether now is a good time to jump back in depends on your personal situation,” Liu said.