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Banking Opportunities for Mortgage Lenders David Baris Joseph M. Kolar April 23, 2010

Banking Opportunities for Mortgage Lenders David Baris Joseph M. Kolar April 23, 2010. Cross-industry acquisitions Banks acquiring mortgage companies Mortgage companies acquiring banks Bank regulatory process Opportunities and risks. Overview. Recent Trends. Price

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Banking Opportunities for Mortgage Lenders David Baris Joseph M. Kolar April 23, 2010

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  1. Banking Opportunities for Mortgage Lenders David Baris Joseph M. Kolar April 23, 2010

  2. Cross-industry acquisitions Banks acquiring mortgage companies Mortgage companies acquiring banks Bank regulatory process Opportunities and risks Overview

  3. Recent Trends • Price • Declining Number of Transactions • Deals that “Crashed” • Reasons for Doing Acquisitions • Cheap and Reliable Funding • Licensing • Interest rate exportation • Other mortgage related compliance • Attractiveness of commercial banking business

  4. Different Environments / Compliance • Banks subject to enhanced supervision • Can be closed even if not insolvent in traditional sense • Enhanced examinations • Community Reinvestment Act (CRA) Obligations • Capital Requirements • Severe restrictions if fall below thresholds • Likely scale back of preemption • CFPA

  5. Banking Rules for Acquisitions • Mortgage banking as authorized activity for banks • Factors considered in Agency applications • Regulatory approvals depend on structure and other considerations

  6. What the Rules Don’t Tell You • Mortgage companies represent “red flag” to banking agencies • Cultural differences • Experience with disasters • Concerns with monolines and concentrations • With expert help, transactions can still get approved • Planning and structuring in manner that is “approvable” • Examples

  7. Negative Labels • Monolines • Concentrations • Affiliate transactions and Reg W • Federal safety net concerns • Deposit insurance system • Fed Discount window • Reputational issues for overall system

  8. Alternative Corporate Structures • Mortgage company acquiring bank • Mortgage company as holding company • Mortgage company as sub of bank • Mortgage company as sub of holding company • Mortgage company establishing de novo bank • Bank acquiring mortgage company • Acquisition through bank’s holding company • Acquisition through bank • Acquisition through bank sub • Merger v. Purchase and Assumption (P&A)

  9. Alternatives to Full Acquisition • Bank absorbs mortgage business through employment contracts (with or without acquisition of entity or assets) • Bank acquires percentage of existing mortgage company • Typically need majority interest to be a bank operating subsidiary • Bank forms private label mortgage company using third party mortgage company personnel and back office operation

  10. Special Considerations in Application Process • Understanding regulatory concerns prior to structuring transaction and filing application • Meetings with regulators prior to filing • Knowing the decision makers and impact on process • Monitoring the process after application is filed

  11. For further information contact: David Baris Joseph M. Kolar BuckleySandler LLP 1250 24th Street, NW Suite 700 Washington, DC 20037 (202) 349-8000 DBaris@BuckleySandler.com Jkolar@BuckleySandler.com

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