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| FCMC.PK > SEC Filings for FCMC.PK > Form 10-Q on 14-Nov-2008 | All Recent SEC Filings |
14-Nov-2008
Quarterly Report
Until December 28, 2007, the Company was primarily engaged in the acquisition,
servicing and resolution of performing, reperforming and nonperforming
residential mortgage loans and real estate assets, and the origination of
subprime mortgage loans, principally for its portfolios. As a result, the
Company will continue to be exposed to the deteriorating conditions of the
housing and subprime mortgage markets noted above, and depending on those market
conditions, the Company may experience increased delinquencies and defaults on
its portfolios that could result in possible additional and significant future
losses.
Application of Critical Accounting Policies and Estimates
The Company's significant accounting policies are described in Note 2 to the
December 31, 2007 consolidated financial statements filed on Form 10-K. We have
identified notes receivable and income recognition, discounts on acquired loans,
allowance for loan losses, originated loans held for sale, originated loans held
for investment, other real estate owned ("OREO"), and income taxes as the
Company's most critical accounting policies and estimates. The following
discussion and analysis of financial condition and results of operations is
based on the amounts reported in our consolidated financial statements, which
are prepared in accordance with accounting principles generally accepted in the
United States of America, or GAAP. In preparing the consolidated financial
statements, management is required to make various judgments, estimates and
assumptions that affect the financial statements and disclosures. Changes in
these estimates and assumptions could have a material effect on our consolidated
financial statements. Management believes that the estimates and judgments used
in preparing these consolidated financial statements were the most appropriate
at that time.
Portfolio Characteristics
Overall Portfolio
At September 30, 2008, our portfolio (excluding OREO) consisted of
$1.22 billion of notes receivable (inclusive of purchase discount not reflected
on the face of the balance sheet) and $411.9 million of loans held for
investment. Our total loan portfolio declined 15% to $1.63 billion as of
September 30, 2008, from $1.92 billion at December 31, 2007, as the Company did
not acquire or originate mortgage loans during the first nine months of 2008.
The following table sets forth information regarding the types of properties
securing our loans.
Percentage of Total
Property Types Principal Balance Principal Balance
Residential 1-4 family $ 1,360,719,295 83.34 %
Condos, co-ops, PUD dwellings 207,997,433 12.74 %
Manufactured and mobile homes 15,674,206 0.96 %
Multi-family 485,410 0.03 %
Secured, property type unknown(1) 20,404,652 1.25 %
Commercial 1,902,564 0.12 %
Unsecured loans(2) 25,349,343 1.55 %
Other 109,604 0.01 %
Total $ 1,632,642,507 100.00 %
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(1) The loans included in this category are principally small balance (less than $10,000) second-lien loans acquired, and are collateralized by residential real estate.
(2) The loans included in this category are principally second-lien loans where the residential real estate collateral has been foreclosed by the first-lien holder.
Geographic Dispersion. The following table sets forth information regarding the geographic location of properties securing the loans in our portfolio at September 30, 2008:
Percentage of Total
Location Principal Balance Principal Balance
California $ 239,539,893 14.67 %
New York 179,055,475 10.97 %
New Jersey 151,069,427 9.25 %
Florida 146,099,950 8.95 %
Pennsylvania 74,971,756 4.59 %
Texas 73,921,074 4.53 %
Ohio 54,414,229 3.33 %
Illinois 52,892,744 3.24 %
Maryland 52,464,934 3.22 %
Michigan 47,679,320 2.92 %
All Others 560,533,705 34.33 %
Total $ 1,632,642,507 100.00 %
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Amounts included in the tables above under the heading "Principal Balance" represent the aggregate unpaid principal balance outstanding of notes receivable and loans held for investment.
Asset Quality
Delinquency. Because we specialized in acquiring and servicing loans with
erratic payment patterns and an elevated level of credit risk, a portion of the
loans we have acquired were in various stages of delinquency, foreclosure and
bankruptcy when we acquired them. We monitor the payment status of our borrowers
based on both contractual delinquency and recency delinquency. By contractual
delinquency, we mean the delinquency of payments relative to the contractual
obligations of the borrower. By recency delinquency, we mean the recency of the
most recent full monthly payment received from the borrower. By way of
illustration, on a recency delinquency basis, if the borrower has made the most
recent full monthly payment within the past 30 days, the loan is shown as
current regardless of the number of contractually delinquent payments. In
contrast, on a contractual delinquency basis, if the borrower has made the most
recent full monthly payment, but has missed an earlier payment or payments, the
loan is shown as contractually delinquent. We classify a loan as in foreclosure
when we determine that the best course of action to maximize recovery of unpaid
principal balance is to begin the foreclosure process. We classify a loan as in
bankruptcy when we receive notice of a bankruptcy filing from the bankruptcy
court. We classify a previously delinquent or performing loan as modified when
we have restructured the loan due to the borrowers deteriorated financial
situation, and, as a condition to the closing of the modification, received at
least one full monthly payment at the time of the closing of the modification.
Modified loans are classified as current on both a contractual and recency basis
at the time of the modification. As of September 30, 2008 principally all of the
modified loans consisted of the deferral of the past due and uncollected
interest or a reduction in the interest rate. Interest rate reduction
modifications generally are for a period of one year, and for rate reduction
modifications of delinquent loans, also incorporate a deferral of the past due
and uncollected interest.
During the past several months, due to the continued decline in housing
prices nationally, the deterioration in mortgage markets and the increased
delinquency performance of the acquired and originated loans in the Company's
portfolios, including particularly the portfolio of acquired second-lien
mortgage loans, we significantly added to our servicing staff and intensified
our efforts to work with borrowers to modify their loans, and have recently
begun to more quickly identify those borrowers who are likely to move into
seriously delinquent status and are attempting to promptly apply appropriate
loss mitigation and deficiency strategies to encourage positive payment
performance. In addition, we segregated our deficiency unit into a separate
department headed by a senior manager and reporting directly to the President of
the Company. The Company's deficiency department primarily utilizes the filing
of a judgment action in order to seek some recovery from seriously delinquent
borrowers, principally defaulted borrowers of second-lien mortgage loans.
During the third quarter of 2008, we completed approximately $162.0 million
of loan modifications, including approximately $65.3 million of interest rate
reduction modifications. As of September 30, 2008, total loan modifications
amounted to $276.0 million, which included approximately $65.3 million of
interest rate reductions. The average interest rate reduction on the
$65.3 million of rate modified loans was approximately 4.91% at September 30,
2008, from approximately 11.53% to an average of 6.62%. These interest rate
modifications will reduce interest income by as much as approximately
$3.0 million on an annualized basis. Approximately 85% of all loan modifications
as of September 30, 2008 were performing loans that were delinquent on a
contractual basis less than 90 days at the time of modification, including
approximately 58% that were in a current status on a contractual basis and
granted modifications based on our evaluation of the borrowers deteriorated
financial situation. At December 31, 2007 and September 30, 2007, loan
modifications totaled $10.5 million and $12.6 million, respectively.
The following tables provide a breakdown of the delinquency status of our notes receivable, loans held for investment and loans held for sale portfolios as of the dates indicated, by principal balance.
September 30, 2008
Contractual Delinquency Recency Delinquency
Days Past Due Amount % Amount %
Performing - Current 0 - 30 days $ 512,646,413 31.40 % $ 581,847,496 35.64 %
Delinquent 31 - 60 days 49,585,457 3.04 % 35,140,081 2.15 %
61 - 90 days 5,146,400 0.31 % 24,242,795 1.48 %
90+ days 155,106,917 9.50 % 81,254,815 4.98 %
Modified Loans 0 - 30 days 187,270,400 11.47 % 219,059,007 13.42 %
Delinquent 31 - 60 days 38,965,710 2.39 % 22,208,670 1.36 %
61 - 90 days 1,297,552 0.08 % 14,846,238 0.91 %
90+ days 48,473,706 2.97 % 19,893,453 1.22 %
Bankruptcy 0 - 30 days 25,085,074 1.53 % 71,807,705 4.40 %
Delinquent 31 - 60 days 6,538,642 0.40 % 6,906,295 0.42 %
61 - 90 days 1,979,875 0.12 % 5,684,040 0.35 %
90+ days 119,949,707 7.35 % 69,155,258 4.23 %
Foreclosure 0 - 30 days 6,322,187 0.39 % 24,999,493 1.53 %
Delinquent 31 - 60 days 871,576 0.05 % 6,101,502 0.37 %
61 - 90 days 238,783 0.02 % 4,318,266 0.27 %
90+ days 473,164,108 28.98 % 445,177,393 27.27 %
Total $ 1,632,642,507 100.00 % $ 1,632,642,507 100.00 %
Total loans 0 - 30 days $ 731,324,074 44.79 % $ 897,713,701 54.99 %
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Included in the foreclosure category are approximately $186.4 million of
loans for which the Company has proceeded to file a judgment action against the
borrower on the note personally instead of seeking to foreclose on the related
collateral, of which approximately $180.2 million are second-lien loans, and
approximately $9.7 million of loans for which judgments have been obtained, of
which approximately $8.7 million are second-lien loans.
Included in the above table are second-lien mortgage loans in our notes
receivable portfolio in the amount of $807.9 million, of which $371.2 million
and $419.7 million were current on a contractual and recency basis,
respectively. The legal status composition of the second-lien mortgage loans at
September 30, 2008 was: $442.6 million, or 55%, are performing; $62.7 million,
or 8%, are modified due to delinquency or the borrower's financial difficulty;
$69.2 million, or 9%, are in bankruptcy; and, $233.4 million, or 29%, are in
foreclosure (including $188.9 million where a judgment action has been filed
against the borrower on the note personally or where judgments have been
obtained). At September 30, 2008, $15.0 million of the modified loans was
delinquent on a contractual basis, while $11.0 million of the modified loans was
delinquent on a recency basis.
During 2007, particularly during the second half of the year, and continuing
in the first nine months of 2008, due to declining housing prices in general and
a rapid and severe credit tightening throughout the mortgage industry,
particularly for subprime borrowers, total portfolio payoffs through
borrower refinancing have declined significantly as it became more difficult for borrowers with any type of credit deficiency to refinance their loans. Total portfolio payoffs declined approximately 59% in the nine months ended September 30, 2008 from the same nine month period in 2007. In addition, due principally to the increase in delinquent loans in the Company's portfolio, which at September 30, 2008 comprised approximately 45% of the total portfolio, total portfolio principal collections, excluding loan payoffs, declined by approximately 30% during the nine months ended September 30, 2008 compared with the same nine month period in 2007, and approximately 19% during the current three months compared with the same three month period in 2007.
December 31, 2007
Contractual Delinquency Recency Delinquency
Days Past Due Amount % Amount %
Performing - Current 0 - 30 days $ 951,861,876 49.48 % $ 1,110,650,415 57.73 %
Delinquent 31 - 60 days 123,519,019 6.42 % 95,368,280 4.96 %
61 - 90 days 8,853,424 0.46 % 34,790,945 1.81 %
90+ days 285,242,612 14.83 % 128,667,291 6.69 %
Modified Loans 0 - 30 days 7,982,183 0.41 % 10,146,896 0.52 %
Delinquent 31 - 60 days 1,694,772 0.09 % 393,498 0.02 %
61 - 90 days 77,350 0.00 % - -
90+ days 794,889 0.04 % 8,800 0.00 %
Bankruptcy 0 - 30 days 29,384,478 1.53 % 87,622,292 4.55 %
Delinquent 31 - 60 days 6,383,420 0.33 % 7,556,925 0.39 %
61 - 90 days 2,556,033 0.13 % 3,995,884 0.21 %
90+ days 114,241,573 5.94 % 53,390,403 2.78 %
Foreclosure 0 - 30 days 1,991,903 0.10 % 32,997,880 1.71 %
Delinquent 31 - 60 days 3,597,615 0.19 % 11,465,656 0.60 %
61 - 90 days 374,471 0.02 % 10,356,000 0.54 %
90+ days 385,324,958 20.03 % 336,469,411 17.49 %
Total $ 1,923,880,576 100.00 % $ 1,923,880,576 100.00 %
Total loans 0 - 30 days $ 991,220,440 51.52 % $ 1,241,417,483 64.53 %
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Included in the foreclosure category are approximately $39.0 million of loans for which the Company has proceeded to file a judgment action against the borrower on the note personally instead of seeking to foreclose on the related collateral, of which approximately $35.7 million are second-lien loans, and approximately $19.4 million of loans for which judgments have been obtained, of which approximately $18.2 million are second-lien loans.
September 30, 2007
Contractual Delinquency Recency Delinquency
Days Past Due Amount % Amount %
Performing - Current 0 - 30 days $ 1,092,646,191 55.50 % $ 1,250,927,577 63.55 %
Delinquent 31 - 60 days 123,976,227 6.30 % 75,308,691 3.82 %
61 - 90 days 10,207,069 0.52 % 31,061,780 1.58 %
90+ days 212,203,034 10.78 % 81,734,473 4.15 %
Modified Loans 0 - 30 days 7,834,137 0.40 % 9,567,237 0.49 %
Delinquent 31 - 60 days 968,230 0.05 % 756,551 0.04 %
61 - 90 days 231,602 0.01 % 197,202 0.01 %
90+ days 1,568,083 0.08 % 81,062 0.00 %
Bankruptcy 0 - 30 days 30,749,328 1.56 % 88,300,973 4.49 %
Delinquent 31 - 60 days 7,626,350 0.39 % 9,383,435 0.48 %
61 - 90 days 2,693,854 0.14 % 3,595,828 0.18 %
90+ days 106,736,276 5.42 % 46,525,572 2.36 %
Foreclosure 0 - 30 days 779,147 0.04 % 32,380,044 1.64 %
Delinquent 31 - 60 days 4,619,690 0.23 % 16,766,930 0.85 %
61 - 90 days 1,187,643 0.06 % 18,614,531 0.95 %
90+ days 364,488,152 18.52 % 303,313,127 15.41 %
Total $ 1,968,515,013 100.00 % $ 1,968,515,013 100.00 %
Total loans 0 - 30 days $ 1,132,008,803 57.51 % $ 1,381,175,831 70.16 %
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Included in the foreclosure category are approximately $38.4 million of loans for which the Company has proceeded to file a judgment action against the borrower on the note personally instead of seeking to foreclose on the related collateral, of which approximately $35.2 million are second-lien loans, and approximately $14.8 million of loans for which judgments have been obtained, of which approximately $13.8 million are second-lien loans.
Notes Receivable Portfolio
At September 30, 2008, our notes receivable portfolio included approximately
24,405 loans with an aggregate unpaid principal balance ("UPB") of $1.22 billion
and a net UPB of $702.2 million (after allowance for loan losses of
$394.0 million), compared with approximately 28,865 loans with an aggregate UPB
of $1.42 billion and a net UPB of $1.06 billion (after allowance for loan losses
of $230.8 million) as of December 31, 2007. Impaired loans comprise and will
continue to comprise a significant portion of our portfolio. Many of the loans
we acquired were impaired loans at the time of purchase. We generally purchased
such loans at discounts and have considered the payment status, underlying
collateral value and expected cash flows when determining our purchase price.
While interest income generally is not accrued on impaired loans, interest and
fees are received on a portion of loans classified as impaired. The following
table provides a breakdown of the notes receivable portfolio by performing and
impaired loans:
September 30, 2008 December 31, 2007
Performing loans $ 615,793,474 $ 1,087,987,060
Allowance for loan losses 117,120,054 129,967,195
Nonaccretable discount* 24,005,390 61,590,526
Total performing loans, net of allowance for loan losses and
nonaccretable discount 474,668,030 896,429,339
Impaired loans 604,910,856 330,212,508
Allowance for loan losses 276,922,899 100,842,743
Nonaccretable discount* 75,301,773 40,551,354
. . .
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