--ResCap loan sales should generate $4.5 billion for
creditors
--Dozens of homeowners protested Monday outside of U.S.
Bankruptcy Court in Manhattan
--ResCap filed for Chapter 11 bankruptcy protection on May
14
(Updates throughout, to add details about sale approval of
mortgage servicing platform.).
By Joseph Checkler
NEW YORK--A judge on Monday approved Residential Capital LLC's
$3 billion sale of its mortgage-servicing platform to Ocwen
Financial Corp. and Walter Investment Management Corp., marking a
major milestone in the mortgage servicer's six-month-old bankruptcy
case.
Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan earlier
in the day approved ResCap's other major deal, a $1.5 billion sale
of legacy mortgage loans to Berkshire Hathaway Inc. (BRKA, BRKB).
The legacy loans and mortgage platform generated about $1 billion
more than the initial lead bids at an auction last month.
Judge Glenn said the ResCap deals represent a notable exception
to prior insolvencies of loan servicers. He pointed out that most
other bankrupt mortgage servicers quickly liquidated, without the
kinds of results ResCap achieved. Morrison & Foerster LLP's
Gary Lee, a ResCap lawyer, said, "This far exceeds everybody's
expectations on the debtor's side."
The $3 billion mortgage servicing deal has been attacked by a
diverse collection of parties, from the U.S. government to a
grass-roots group representing individual mortgage holders and to
ResCap's government-controlled parent, Ally Financial Inc. Many are
concerned that Ocwen's isn't being required to honor ResCap's
obligations to protect homeowners with mortgage problems. ResCap
settled or put off consideration of some objections to later dates,
in hopes it can settle those matters too.
The Neighborhood Assistance Corp. of America, which provides
housing assistance and counseling to financially troubled
borrowers, also argued that because many of Ocwen's
mortgage-servicing employees are based overseas, the ResCap deal
would use taxpayer money to outsource American jobs. Morrison &
Foerster's Mr. Lee at one point said he would try to set up a
meeting between NACA and Ocwen over the organization's concerns for
the borrowers it represents.
The debate over the mortgage-servicing platform was a plodding
affair that had been expected, considering the business includes
2.4 million mortgages with total unpaid balances of more than $370
billion.
In conditionally approving Berkshire's $1.5 billion purchase of
legacy mortgage loans that ResCap is holding to sell, the judge
said ResCap must still work out issues related to the backup bid
that's in place in case the Berkshire Hathaway's bid falls
through.
On the mortgage servicing platform, the judge also commended
ResCap for pushing back some objections until after the sale
hearing, and settling dozens of others. Another hearing will be
held Tuesday at 2 p.m. EST, where final details of settlements and
changes to the deals will be described to the judge.
ResCap filed for Chapter 11 protection on May 14, as
bond-related payments loomed and litigation over soured
mortgage-backed securities mounted. The move is intended to help
Ally, which isn't part of the bankruptcy, sever itself from an
estimated $400 million-$1.25 billion in liabilities related to
ResCap's troubles.
The backbone of ResCap's bankruptcy exit strategy is the sale of
the loans and mortgage platform that were the subject of Monday's
hearing.
Much of the concern about Ocwen was related to whether the
company will comply with the historic national mortgage settlement
that ResCap and other servicers signed, along with the federal
government and 49 state attorneys general. The settlement called
for an overhaul of mortgage servicing practices after widespread
allegations of fraud. Ocwen has said it would use its best efforts
to address the nationwide settlement as part of its ResCap
purchase.
Jacqueline Palank in Washington contributed to this article.
Write to Joseph Checkler at joseph.checkler@wsj.com.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
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