Berkshire Hathaway (NYSE:BRKA)
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5 Years : From May 2011 to May 2016
--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 firstname.lastname@example.org.
(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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