Six months after signaling its intention to leave manufactured housing finance, J.P. Morgan Chase & Co. has found a buyer for its remaining $4 billion portfolio.
Is the deal a sign that the market for such assets is improving? The answer depends on how you look at it.
Outsiders speculated that the buyer, the Vanderbilt Mortgage and Finance Inc. subsidiary of Warren Buffett's Berkshire Hathaway Inc., probably agreed to pay par or a slight discount.
The companies did not disclose the price of the deal, which was announced Tuesday, but did say it will close this month, which suggested to some that JPM Chase was acting on a desire to get out of the business this year. (It stopped originating loans on prefabricated homes in May.)
But others said the fact that a deal got done - and that Mr. Buffett is continuing to invest heavily - bodes well for the recovering sector.
Don Glisson, the president of Triad Financial Services Inc. in Jacksonville, Fla., said the deal "shows tremendous confidence" in the business.
Mr. Buffett "poured another $4 billion into our industry. That's a good sign," Mr. Glisson said. "It's one thing to do a $100 million portfolio purchase; but to commit $4 billion, that's a lot of money," even for Mr. Buffett. The commitment "will get a lot of attention from other investors."
The portfolio probably went for par value or close to it, because Chase's portfolio is high-quality "'A' paper, bank-quality," Mr. Glisson said. "My understanding was Chase wasn't going to let it go for a steal or a significant loss."
Chris Nicely, a spokesman for Clayton Homes Inc. of Knoxville, Tenn., Vanderbilt's immediate parent, said "the time was right" because JPM Chase was "interested in departing this part of the industry."
Thomas Kelly, a Chase spokesman, said Wednesday that though "it's cleaner to sell it by the end of the year," the decision came down to the sale price.
In a report Wednesday, Jason M. Goldberg, an analyst at Lehman Brothers, wrote that he believed "the sale price approximates or was slightly less than book value."
Ken Roberts, a manufactured housing consultant in St. Paul, said that JPM Chase probably wanted to "get rid of" the assets by yearend. Vanderbilt "likely got it at a discount," said Mr. Roberts, formerly a longtime industry executive.
Still, he said that at this point the portfolio is "nothing but a moneymaker." Since it is made up of seasoned loans, it is likely that many of the poorly performing ones have run off, he said.
"When do repossessions come? Mostly in the first three years," Mr. Roberts said. "By the time they buy the portfolio, a lot of the fluff is out of it. The first three-year period is when you're going to get" a higher frequency.
Vanderbilt and another Clayton unit, 21st Mortgage Corp., would each service half of the JPM Chase portfolio, wrote Richard Ray, the chief financial officer of 21st, in an e-mail Wednesday. Mr. Nicely said Vanderbilt services $12 billion of loans, and that 21st's portfolio is smaller, but its size is not "public."
Mr. Roberts called Clayton "the new gorilla on the landscape, and they feel they're going to wrap everything up. They've taken over a lot." The deal probably gives Clayton more efficiency, because it probably will not have to "staff up much more" to service the portfolio, he said.
Trump Card
To help make up for losing a link with one of the world's best-known consumer brands, Genworth Financial Inc. hopes to ride the coattails of a man whose very name is a brand.
Two charity events hosted by the General Electric Co. spinoff will be involved in the tasks performed by the final four contestants on Donald Trump's "The Apprentice" during the final two episodes of the reality show.
The first of the episodes, which were taped in June, airs on GE's NBC network tonight.
The Richmond, Va., insurer, which went public in May, started talking with the show's producers in June, according to Genworth spokesman Mike Kachel. He would not give the cost of the placement but said the company expects about 20 million viewers for each installment.
(Genworth's mortgage insurance unit, in Raleigh, was the fifth-largest underwriter of private coverage through Sept. 30, according to Inside Mortgage Finance.)
Genworth views its "Apprentice" appearance as its first real attempt to build brand recognition with consumers and help them understand that "we are as large as we are," Mr. Kachel said. The company hopes that following Pepsi and M&Ms, two brands prominently featured in recent episodes, will vault Genworth into "a whole new stratosphere."
Genworth's previous TV effort was aimed at the intermediaries that sell its products, Mr. Kachel said. (A commercial, which airs only on cable news and sports channels, features a boy, supposedly the young son of the tennis stars Andre Agassi and Steffi Graf, embarrassing an adult opponent on the court. The ad emphasizes the company's GE "genes" and makes no mention of what Genworth actually does.) Mr. Kachel said the next spot, due in January, will refer to the company's insurance and investment products.
An international company like its former parent, Genworth believes that overseas viewers make Mr. Trump's show an especially good way to get the word out, he said.
The second season of "The Apprentice" is airing in Canada and Australia, in both of which Genworth is a major player in mortgage insurance. It could also get publicity in the United Kingdom - where last year's episodes are being shown now - when the second season runs there, Mr. Kachel said.
Around the Block
A plan by H&R Block Inc.'s Option One Mortgage Corp. to roll out automated prequalification and underwriting systems prompts the question: What took so long?
Robert Dubrish, the president and chief executive of the Irvine, Calif., subprime lender, acknowledged that it was "a little late to the game," even in the world of nonconforming loans, where such innovations came slower.
But Mr. Dubrish said the unit was also wary about introducing a system that could alienate some of the brokers whose loans it funds.
For automated underwriting in particular, Option One wanted a system in which "if the broker gets an approval with five conditions, there's not going to be any conditions added after the fact" by a human underwriter, he said.
That was a complaint of some brokers about other systems, according to Mr. Dubrish. The automation Option One is testing will allow a "certain percentage" of loans to proceed to closing without being reviewed by a person, and the number "will get bigger as we get more comfortable," he said.
The delay was also partially a reflection of Option One's desire to be a "high-touch, high-service level" wholesaler, whose account executives get involved in brokers' business, Mr. Dubrish said. This attitude will not change, because the system will free up its account executive staff (which has grown by a third in the past six months, to 350) from doing busywork, he said.
For instance, he said, they will no longer need to do prequalifications for brokers from their homes at night. (Option One has embraced automation in handling loans internally and providing investor information, Mr. Dubrish said. "In fact, we've been working on the internal process automation pretty rigorously.")
Last month H&R Block said the new system would offset a competitive pricing environment. But the company also said that price competition will probably drag on for longer than previously expected; as a result, it cut its 2004 guidance.
The technology is to be introduced in H&R Block's fiscal fourth quarter, which begins Feb. 1.
Jody Shenn contributed to this column.
