HomeBanc Shifts Focus to Servicing Side of Business

Back in January of this year, Kevin D. Race was promoted from president to chief executive of HomeBanc Corp. here to oversee the long-troubled company's streamlining of operations.

When the promotion of Mr. Race was made, HomeBanc had also finished a strategic alternatives review process that resulted in the company deciding to remain a standalone entity and not pursue a sale.

In the first quarter of this year, HomeBanc had a net loss to common stockholders of $23.8 million, or $0.42 per share.

This came after net losses of $11 million in 2006, $11.6 million in 2005 and $48.3 million in 2004.

But now, as market forces have caused a liquidity crunch affecting a growing number of lenders, HomeBanc has been forced to leave the mortgage loan origination business. It was mostly a prime and alt-A lender.

In a statement, HomeBanc admitted not being able to borrow on its credit facilities and thus had not funded any loans starting on Aug. 6. It will not fund any future loans nor fund any loans previously originated but not yet funded.

The company did agree to sell certain assets related to its retail mortgage operations, including up to five branch offices, to Countrywide Financial Corp., Calabasas, Calif. Countrywide said it is not paying a cash premium.

As part of the agreement, Countrywide is expected to hire a significant number of HomeBanc's loan officers.

The transaction was scheduled to close on August 10, just as MSN was going to press.

In a statement, Mr. Race said, "In light of the extraordinary difficulties that HomeBanc continues to face in the mortgage loan origination market, we feel that it is in the best interests of the company to exit this business so that we can focus on preserving the value of our investment portfolio assets and loan servicing operations."

HomeBanc has an $8.6 billion mortgage servicing portfolio and a $4.5 billion mortgage investment portfolio.

The company has a winding history, getting its start as Home Federal Savings & Loan, which in 1990 changed its name to HomeBanc Federal Savings Bank. After the parent thrift was sold to SouthTrust in 1994, HomeBanc Mortgage became for a brief time a standalone company.

It was sold to First Tennessee, now called First Horizon, in July 1995. Its management team, under the direction of former chairman and chief executive Patrick S. Flood, repurchased HomeBanc in May 2000.

During 2004, HomeBanc joined a number of other residential mortgage lenders who decided they were better off taking real estate investment trust status.

Even before Mr. Race assumed the CEO job, HomeBanc was and still is looking to de-REIT. A spokesman said that would take effect when the company files its taxes.

Back in January, new chairman James Witherow said the review process, in which JPMorgan advised HomeBanc, was a "strategic gut check." It found its pool of potential partners to be "very shallow." While it did get some "serious inquiries," he added it was "just not the right time" for a sale of the company.

Mr. Flood had left the company, he said, because HomeBanc was looking to streamline and change needed to come from the top.

Besides the issues with liquidity, the New York Stock Exchange had suspended trading in HomeBanc's common and Series A preferred stock on Aug. 3.

On that day its common stock closed at $0.30 per share. Back in February 2005, HomeBanc's initial public offering priced at $9.10 per share.

NYSE said the "abnormally low" price of HomeBanc's common stock "makes it appropriate to suspend the company's securities at this time rather than provide the company an opportunity to cure the price deficiency."

Countrywide president and chief operating officer David Sambol said in a statement his company is "continuing to leverage the opportunities that are arising from the consolidating market. "This agreement illustrates the low-cost, low-risk transaction strategy we are undertaking in this environment to strengthen our retail franchise." (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.bondbuyer.com/ http://www.sourcemedia.com/

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