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Thursday, June 12, 2008

Ranieri's Bank Shuts Mortgage-Fund Unit (Franklin Bank)

By Ari Levy
June 12 (Bloomberg) -- Franklin Bank Corp., the Texas bank led by founder Lewis Ranieri, is closing its unit that provides financing to mortgage bankers, according to a person familiar with the situation.
The Houston-based company is ``substantially exiting'' the so-called warehouse-lending business, firing most of its 20 employees, said the person, who asked not to be identified because the move hasn't been announced. Franklin can't sell the loans to securities firms, the person said.
With Franklin's departure, the number of banks providing funding for mortgage bankers has dwindled to 12 from about 75 two years ago, said David Lykken, head of Austin, Texas-based Mortgage Banking Solutions. Among those, only half are taking applications, he said.
``This is alarming for the mortgage industry,'' said Lykken, whose firm is a consultant to banks and brokers. ``It is right now the weakest link.''
The closure signals that Ranieri's bet on the beleaguered housing market may be faltering. Ranieri, who formed the bank in 2002, became chief executive officer of Franklin last month after an internal probe found accounting errors related to real-estate loans. Spokeswoman Karen Farwell declined to comment for this story.
Franklin fell 5 cents to 89 cents at 4:24 p.m. New York time on the Nasdaq Stock Market. The shares have tumbled 94 percent in the past year as losses on loans to homebuilders mounted.
Buying Mortgages
Apart from Franklin, Ranieri, 61, is buying residential mortgages amid the worst housing crisis since the Great Depression. Selene Residential Mortgage Opportunity Fund LP, whose managing partners include Ranieri, raised $151 million from investors as of April 15, according to a regulatory filing. The firm plans to raise $1 billion to buy and refinance delinquent mortgages, said David Creamer, another managing partner, in an interview last month.
Ranieri's banking history dates back to the 1960s at New York's Salomon Brothers Inc. As vice chairman, he later helped turn Salomon into the most profitable firm on Wall Street by packaging mortgages to sell as securities.
More than 100 lenders have been forced to close, halt operations or sell themselves since the beginning of last year as home prices plunged and foreclosures rose to a record.
Washington Mutual Inc., Impac Mortgage Holdings Inc. NovaStar Financial Inc. and Regions Financial Corp. are among those that closed their warehouse-lending units. Banks that would purchase the mortgages are now buying only the safest loans, like those generated by government-sponsored Fannie Mae and Freddie Mac.
National City Corp, Ohio's largest bank, and Dallas-based Coamerica Inc. are still in the warehouse-lending business.
To contact the reporter on this story: Ari Levy in San Francisco at
Posted by Anthony Landaeta Jr 06/12/08

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