NAB Sued Over HomeSide's MSR Valuations
National Australia Bank here, the former owner of mega-servicer HomeSide Lending, Jacksonville, Fla., has been slapped with a civil class-action lawsuit, accusing it of violating securities laws in regard to disclosures on the value of HomeSide's residential receivables.
In the summer and fall of 2001, NAB wrote down its investment in HomeSide by $2.2 billion.
Last year, NAB sold HomeSide's production network to Washington Mutual, Seattle, for a mere $25 million. In a separate deal that came later, WaMu bought $131 billion of HomeSide's servicing portfolio.
Midfirst of Oklahoma reportedly bought about $15 billion in servicing from HomeSide - mostly government- backed product. (This sale has never been confirmed.)
At one point HomeSide had about $187 billion in servicing rights on its books.
The company was hammered by refinancings and faster-than-expected prepayment speeds on its receivables.
In January 2002, NAB conducted an independent review of the HomeSide writedowns, concluding that no one at the bank parent was responsible for the debacle.
Instead, the review held accountable three HomeSide executives who were fired by NAB in the fall of 2001: chief executive Hugh Harris, president Kevin Race and chief financial officer Blake Wilson. (All three have declined to talk about HomeSide with this newspaper and its affiliate, National Mortgage News.)
The review of HomeSide and its writedowns was conducted by the firm of Wachtell, Lipton, Rosen & Katz, a New York
Messrs. Harris, Race and Wilson initiated an arbitration claim against HomeSide "for recovery of contractual entitlements." The matter was settled privately. All three have gone on to work for other firms.
To this day it is unclear who exactly was responsible for decisions that led to HomeSide overvaluing its servicing. Was it company officials or outside advisors, or both?
When NAB bought HomeSide in the late 1990s some industry insiders believed the bank was over paying for a company with no retail production network.
Meanwhile, details of the lawsuit against NAB were not available as Mortgage Servicing News went to press this month. The bank said in a statement that the lawsuit will "not likely" have a "material adverse effect" on the bank's financial position.
Bonnie Sinnock contributed to this report.
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