Still Shopping
GenStone Acquisition Co. Inc.'s chief executive says he is looking at other opportunities in mortgages now that a tentative deal to invest $1.5 million of equity in - and take over - Washtenaw Group Inc. fell apart.
The deal's collapse forced the holding company for Washtenaw Mortgage Co., a mostly wholesale lender based in Ann Arbor, Mich., to abruptly close down its production operations this month.
GenStone's Rich Coleman said Tuesday that he still wants to add more "minority-owned" flavor to mortgage banking by investing in, buying, or starting another lender - despite (or perhaps because of) the industry's tough times.
"You kind of want to buy into things as they dip, not at their height," he said.
The publicly traded Washtenaw Group was spun off from Pelican Financial Inc., an Ann Arbor bank holding company, to shareholders at yearend 2003. Afterward it struggled with shrinking volume and losses in the wake of a record refinancing boom. Third-quarter production tumbled 36% from a year earlier, to $135 million. (Full-year 2003 volume totaled $3.7 billion.)
Last month Washtenaw announced the plan to sell a majority stake to GenStone, of Cincinnati, which also planned to buy $3.5 million in convertible preferred shares later.
But last week, in a securities filing, Washtenaw said that the deal had been called off - and that a warehouse lender, Natty Mac, was closing Washtenaw's credit line as a result. That forced it to halt originations and, according to The Ann Arbor News, lay off apparently more than 100 people.
Washtenaw Mortgage, which was founded in 1981, had lent through about 2,000 brokers in about 40 states. On Sept. 30, it also owned servicing rights on $517.5 million of loans. So far it has not said what will happen to the servicing side of its business, or to the holding company.
A GenStone division, GenStone Financial, would have been the investor in Washtenaw. Mr. Coleman called GenStone Acquisition a "very diverse holding company" or "merchant bank" that has been involved in fiber-optic cable manufacturing and construction-demolition containers and is also looking into piping systems.
GenStone Acquisition also describes itself as a "certified minority-owned enterprise." In the press release announcing the tentative deal, Mr. Coleman, who is black, said it would apparently create the country's largest minority-owned mortgage banking company. He also said he would refocus Washtenaw on lending to minorities.
This week he said focusing on minorities would also be the plan for any other mortgage venture GenStone gets involved in.
Mr. Coleman said GenStone pulled out because, as reported elsewhere, Charles Huffman, the chairman, CEO, and a major shareholder of both Washtenaw and Pelican (which this month said it would merge with Stark Bank Group Ltd.), wanted to be repaid on a $1 million loan he made to Washtenaw last summer. Mr. Huffman did not return phone calls this week.
Mr. Coleman told American Banker that GenStone was already looking at several other lenders and still thinks there "are some great opportunities, especially on a national scale, for a minority-owned mortgage bank." He offered some, but not many, details on what it seeks.
He would not say how much GenStone might have to spend, but did say the amount of the scotched investment in Washtenaw was not a ceiling.
The strategy Mr. Coleman envisions, which he said might also include distributing nonmortgage financial products, would entail getting into retail lending. But he added it might make the most sense to first buy a wholesaler with scale that he could leverage to build a retail platform.
He said that he liked the fact that Washtenaw was publicly traded, and that he would "shy away from buying a subprime entity at this point."
Under the aborted deal, everything had been set for Washtenaw to remain in business as a lender with much of its existing management, Mr. Coleman said. "They had some very great people. We had a very good business plan to put forward. It's just a shame, and I wish them well."
A spokesman for Washtenaw said he "did not know what the future holds" for it and could not answer many detailed questions about it.
Storm's Impact
Hurricane Katrina drove the national delinquency rate to a seasonally adjusted 4.44% in the third quarter, 10 basis points more than in the second quarter, the Mortgage Bankers Association said Tuesday.
But the latest figure was 10 basis points lower than a year earlier - and was 13 basis points below the second-quarter level if the hurricane's impact is excluded, the trade group said.
Delinquency surged in Louisiana and Mississippi, the states hardest hit by Katrina. In Louisiana they jumped to 24.63% at the end of September, from 6.67% three months earlier; in Mississippi the rise was from 8.53% to 17.44%.
The MBA said it expects higher delinquency and somewhat higher foreclosure rates for at least the next few quarters as a result of the hurricane.
The national foreclosure rate was 0.97% in the third quarter, down 3 basis points from the second quarter and 19 basis points from a year earlier. Katrina has not yet affected this figure.
Delinquency was higher than last year and the second quarter in prime and subprime adjustable-rate mortgages but generally down in fixed-rate mortgages.
Costly Confines
The average hourly wage needed to cover rent and utilities for private housing has risen 41 cents from last year to $15.78, more than triple the federal minimum wage, according to the National Low Income Housing Coalition.
Probably unsurprisingly, Hawaii ($22.30 per hour needed), California ($22.09), Massachusetts ($21.88), New Jersey ($20.87), and New York ($19.73) are the costliest states for renters, according to the coalition's report, Out of Reach 2005, released Tuesday. The calculations assume 52 40-hour working weeks a year.
About 81% of renter families live in counties where a two-bedroom apartment at the Department of Housing and Urban Development-calculated "fair market rent" is unaffordable even with two full-time minimum wage earners, the report found. Nine out of 10 live in counties where renters' typical wages according to the Bureau of Labor Statistics (for example, $12.22 nationally) are too little for a modest two-bedroom.
Quotable ...
"The housing market is primed to interpret any piece of data in a negative light. A case in point as this month's release of existing-home sales. ..."In some quarters, the main thrust of this news item was the fact that the number of homes currently for sale had not been so high since 1986. The fact that the housing market is currently about a third larger than it was in 1986 was not mentioned at all."
- Bond analysts at Bear, Stearns & Co. Inc. in a report this week.
