Mortgage - Home Loan, Commercial Loan

BY ROBERT J. BRUSS

Kim Sisemore, mother of a 3-year-old daughter, is licensed to operate a family day-care center for up to 14 children in her residence. She applied for a home loan from Master Financial to enable her to buy a house suitable for her day-care business.

Although Sisemore was otherwise qualified for the mortgage, Master Financial rejected her application, stating in writing it “will not make loans with home day care if the home day care income is required to qualify.”

Sisemore, along with Project Sentinel, a nonprofit fair-housing organization, joined to bring this lawsuit, alleging violations of civil rights laws based on the lender’s refusal to approve a home loan to a borrower who operates a home day-care center.

If you were the judge, would you rule the mortgage lender discriminated against Sisemore based on her occupational status?

The judge said yes.

The evidence shows Master Financial refused to approve Sisemore’s home loan based on her source of income from her day-care center, the judge began. Although the lender’s discrimination based on Sisemore’s source of income might not have been intentional, he continued, it was still a violation of civil rights laws to reject the mortgage due to her income source.

Therefore, it was illegal discrimination by the mortgage lender based on Sisemore’s source of income and occupational status, the judge ruled. The lender’s discrimination created a disparate impact against women and families, he concluded.

Based on the 2007 California Court of Appeal decision in Sisemore v. Master Financial Inc., 60 Cal.Rptr.3d 719.

WILMINGTON, Del. (AP) — A judge on Monday rejected a bid to delay consideration of American Home Mortgage Investment Corp.’s plan to sell its loan-servicing unit, saying he’s worried the business is losing value.

“I’m extremely concerned about the wasting nature” of the loan-servicing business, said Judge Christopher Sontchi of the U.S. Bankruptcy Court in Wilmington. He turned down a request to postpone a hearing on American Home’s bid to sell the business for $500 million to an affiliate of billionaire investor Wilbur Ross.

Sontchi said he’s had experience with companies that “lost monumental amounts of value” because of prolonged stays in Chapter 11, and said he did not want the same to happen to American Home. He also said he was “extremely concerned” about American Home’s ability to retain loan-servicing employees as the company liquidates assets.

James Patton, an attorney for American Home, told Sontchi at a court hearing Monday that a delay could cause the company to lose the sale to WL Ross & Co., the Wilbur Ross affiliate. That’s because the portfolio of loans being serviced is dwindling as homeowners pay down their loans.

American Home stopped making new loans shortly before its Aug. 6 bankruptcy filing. Ross can walk away from the sale if the portfolio of loans American Home services drops below $38 billion, said Patton, who is with the law firm Young, Conaway, Stargatt & Taylor. That portfolio was $46 billion just a few weeks ago.

Eugene Weil, a financial adviser to American Home, on Monday estimated that the company will be servicing $40 billion to $44.5 billion worth of loans at the end of October, when the first of two stages of the Ross deal are scheduled to close.

The proposed sale has aroused fierce opposition from several Wall Street investment banks — including Citigroup Inc., Goldman Sachs & Co. and Bear Stearns & Co. — that say American Home lost its right to service the loans and therefore cannot sell that right to WL Ross.

At least one bank, an affiliate of Bear Stearns, has also warned that WL Ross isn’t a licensed loan-servicer and that obtaining a license could take up to 10 months.

American Home, based in Melville, N.Y., has resolved some objections to the Ross sale. It agreed to eliminate home equity line of credit loans from the business being sold. It also reached a deal on its loan-servicing credentials with Fannie Mae.

Fannie Mae agreed to recognize American Home as a qualified loan servicer until the sale to Ross closes. The government-backed housing lender has also agreed to recognize WL Ross & Co. as a qualified loan servicer, provided certain conditions are met.

Provident Bank has set aside a $4.1 million reserve from earnings for a commercial loan that is in default, the bank said in an Oct. 2 filing with the Securities and Exchange Commission.

The move will offset most of Provident’s gain from selling six of its Virginia branches to Union Bankshares, the company said.

Provident did not name the borrower on the loan, but said it recently placed the loan on “non-accrual” status after the borrower’s CEO was indicted in federal court. Provident said in its SEC filing that it is “aggressively pursuing its rights and remedies” with the loan, and is evaluating the value of the accounts receivable and inventory that secured the loan.

Provident’s decision to set aside the reserve comes as many banks are already struggling to turn a profit in a challenging interest rate environment. Provident’s second-quarter earnings fell by 23 percent from the same period in 2006.

Tuesday, October 16, 2007 (New York):

Stocks pulled back sharply Monday as news that major US banks will set up a fund to help bail out the credit markets stirred concerns about bad debt and as oil prices surged to $86 per barrel for the first time. The Dow Jones industrial average lost more than 100 points.

The stock market’s pullback comes not only amid concerns about debt and rising energy costs but as investors await third-quarter reports due this week from more than 80 components of the Standard & Poor’s 500 index.

The concerns about banking came after Citigroup Inc., the biggest US bank, reported that third-quarter results fell 57 per cent. The company said it lost more than $3 billion in mortgage-backed security losses, leveraged debt write-downs and fixed-income trading losses.

The bank along with JPMorgan Chase & Co. and Bank of America Corp. announced the creation of a fund used to help revive the asset-backed commercial paper market.

The fund will buy assets from structured investment vehicles, also known as SIVs, which buy corporate bonds and subprime mortgage debt. The bailout was orchestrated by the Treasury Department to avoid a fire sale in the market.

“It’s a reminder that this problem never was entirely put to bed. There may be financial institutions out there that are in more trouble than we thought they were,” said Aaron Gurwitz, co-head of portfolio strategy at Lehman Brothers Investment Management.

Bond prices

The Dow fell 108.28, or 0.77 per cent, to 13,984.80. Broader stock indicators also declined. The S&P 500 index fell 13.09, or 0.84 per cent, to 1,548.71, and the Nasdaq composite index fell 25.63, or 0.91 per cent, to 2,780.05.

Bond prices fell following a better-than-expected regional economic reading in New York, but the losses were erased later. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.68 per cent from 4.70 per cent late Friday. The dollar fell against most other major currencies, while gold prices rose.

Citigroup fell $1.63, or 3.4 per cent, to $46.24 after the bank raised its loan-loss provisions by $2.24 billion a higher amount than it estimated a week ago amid expectations of further deterioration in consumer credit. The bank also said it would delay repurchases of its shares.

Medtronic Inc. fell $6.33, or 11 per cent, to $50 after the company said it is halting distribution of wires that connect some of its defibrillators to patients’ hearts after learning they may have contributed to five deaths.

Biogen Idec Inc. jumped $13.08, or 19 per cent, to $82.51 after the company said it may sell itself and that it has drawn interest from potential buyers.

Declining issues outnumbered advancers by about 8-to-3 on the New York Stock Exchange, where consolidated volume came to 3.03 billion shares compared with 2.71 billion shares traded Friday.