First Franklin - Merrill Lynch - Wholesale

Update to Ailing Post - 2008-02-18: Dismal volume reports and additional office cuts coming in the next few weeks are the buzz we're hearing. Sales Managers have all been let go, and only a handful of AE's remain for each of the six operating offices.

One poster said "For sure two branches will be gone by the end of the month, maybe more."

Another writes "It really looks like the hammer is coming down this week."

Sources tell us that all but two offices (San Jose, CA and the servicing center in PA) will be closed by or before the end of March. Plans to implement FHA/Conforming products are understandably stymied by licensing, staffing, retraining and other issues, including the extensive restructuring of their existing IT platform(s) that would be required to integrate any new systems (like DU/LP etc) and will delay the process. AE's had been promised these roll-outs as soon as March of 2008, but realistically it would take much longer (next year?) without some magic wand.

Apparently, the Implode-O-Meter and Forum participants have played a significant role in developments. Here are a few quotes from emails we have received:

"...it would have been shut down much faster and over by now had their not been a public web site tracking every move they made. "Given the attention directed at Merrill Lynch and FF the process has strategically slowed down as it would be a direct reflection on stocks and add an extra spotlight on the stupidity of the purchase of FF.""

"I have a strong feeling that our/your Shock and Awe thread influenced ML's strategy with the layoffs."

"..decisions have been made and some of it is wrapped around ml-implode. Had they imploded it awhile ago it may have already been over."

"The mass exposure of our thread undoubtedly made them rethink their plan of action ..."

"We(YOU) definitely rattled ML's cage, and that's not so easy to accomplish."

Mother Merrill still can't figure out how to close First Franklin without further embarrassment. It seems our previous Premium Alerts (First Franklin'stein & First Franklin - Shock & Awe) were pretty popular. Our Forum thread (click to read) has attracted more than 176 thousand views.

Update to Ailing Post - 2008-02-04: Word from our tipsters is First Franklin will keep enough of the company open to make a play for Agency conforming business, perhaps in place as early as June, 2008.

We were sent the following regarding January's business:

"3 loans funded for the company for $350,000 - two from the Phoenix branch one from Atlanta. The change in headcount from December is minimal - maybe 6 people total dropped off from the entire company. There is a total of about $8 million in the pipeline...doubt much of that will be funded."

We've been told some Regional managers have been given the boot, (last day is the end of this month) with one fired by voicemail.

Update to Ailing Post - 2008-01-04: December's volume nationwide was reportedly a dismal $1.8 million. California accounted for only 2 loans. A year-end headcount report submitted by a tipster reflects just over 300 people left (not counting AE's). The same report indicated 274 AE's. Broker inquiries to the 800 number on the web site are being referred to the New Jersey office or a recording that politely advises you to "contact your Account Representative on their cell phone."

It's already been reported that most of the remaining AE's have left or are actively seeking other employment. Some are even burning both ends of the candle. One broker in Ohio actually had business cards for a current AE who has actually been working full time for a credit repair firm they said "since August." A quick check of the company's website confirmed it, and revealed another recognized AE there, as well.

The funding issues haven't gone unnoticed, either. An article on Calculated Risk mentions:

"Merrill bought First Franklin from National City just over a year ago--but apparently nobody explained to the First Franklin folks that they no longer had a parent with a big fat hold-to-maturity portfolio with which loan originators can be subsidized in a low-volume period."

Update to Ailing Post - 2007-12-30: Today is the one year anniversary of Merrill's purchase of First Franklin.

We don't have an official word yet, but it's pretty much a given that this tree, and its star have fallen. It became painfully apparent when we received the following tip on 12-29-07:

"They are pricing the loans so that they do not get any [business] when they could be priced better to keep the AES from funding any loans because they cannot keep them on the balance sheets or afford any first payment defaults. First Franklin had asked for credit lines to fund loans and keep them on the books and it was denied and they were told they could only fund what they can sell."

We were also told "The loans they are funding now are based on Flagstar's rate sheets and a credit line that is weak... They are losing millions every month"

Just the day before, on 12-28-07 someone submitted "I guess it is pretty bad at the hub. There is like 12 people left... some VP's is about it." Another poster had confirmed this a few days prior, on 12-23-07 "I heard VP's were just released last week. Very quiet."

A poster to the Yahoo message board for Merrill Lynch wrote on the same date:

"I believe the plan was to keep 6 wholesale offices open and ride out the storm, but the volume is so low I think they will be forced to close all the branches and run the wholesale out of the Nation Point retail location. Last I heard Andy was running things, but for how long is anyone's guess."

Just a week earlier on 12-16-07, we, "Heard today that there were more layoffs (at least at corporate) and the entire team that ran National Sales Group is gone. The layoffs leave very few people at the corporate offices."

Forum participants and tipsters painted a grim picture for December '07 volume. For a lender who posted a record-breaking volume of $2.59 billion in May of '04, it's in sharp contrast to the poster that reported as of 12-20-07 "Less than a million wholesale MTD."

Problems have been mounting for months, with declining volumes and repeated downgrades of their portfolios by the ratings agencies. Parent company Merrill Lynch had huge write-downs for the 3rd quarter of '07, and predictions are for another $11+ billion 4th quarter loss.

On 11-29-07, an anonymous tipster wrote "Andy Pollock went up to meet with Merrill's Board on TUES to pitch our business model....yes that's right, to PITCH Merrill on the business model." Come on now... they KNOW the model... he's really requesting a lifeline!

Blogs are beginning to fill up with nightmare stories from current and former FF mortgage customers experiencing the industry-wide crisis of ARM resets. One poster on Mortgage Lenders Web claimed "I have a ARM Mortgage with FF and I wanted to refinance, I am told by their rep. that they are out of the Mortgage Business and that they can't refinance my Mortgage."

Original Ailing Post - 2007-12-03: We have every indication that First Franklin's (subsidiary of Merrill Lynch B&T Co.) operations have been drastically reduced, dozens of offices closed, and production is at a near standstill for one of the nation's remaining large subprime lenders.

Tipsters have indicated monthly production volumes nationwide dropping precipitously over the calendar year to the tens' of millions (and even below) in stark contrast to multi-billion dollar levels seen in past years.

The ouster of Merrill's Chairman and CEO Stan O'Neal headlined a rash of executives forced to step down following multi-billion dollar write-offs by some of the industry's largest players. Now nearing FF's 1 year anniversary since acquisition by the Wall Street giant, it remains to be seen if newly-appointed CEO and Chairman John Thain will decide to retain the unit in its fixed income division. O'Neal has received some harsh criticism for his support of the purchase last December, as seen in this article:

Merrill's own subprime warnings unheeded

Mon Oct 29, 2007 2:22pm EDT

NEW YORK (Reuters) - Merrill Lynch & Co Inc's own investment advice on subprime loans appears to have gone unheeded in its executive office.

"...O'Neal admitted the company underestimated its exposure to the subprime market. But he defended the rationale behind the First Franklin deal.

"...we believed we would be able to gain more quality control over the assets as opposed to purchasing from third party mortgage brokers..." he said."

The latest office closure was Tarrytown NY effective 12/3/07. As best we can determine, all but six of approximately 34 offices and a large majority of their employees (reported numbering 2800 at the beginning of the year) have been let go. Exact figures are not available. We shared this and more in our premium newsletter in October, "First Franklin'stein" (Premium Membership required). One contributor wrote:

"One more thing... on a RECORDED companywide conference call last week, Joe McKone openly stated that we "have no products for market."

Aside from tips, we gleaned a wealth of information from our Discussion Forum participants. Just before a second string of layoffs and branch closures occurred, a thread aptly entitled "ML's First Franklin ... Shock & Awe," was started with the following post:

"It looks like a big layoff tomorrow (Monday)... and I don't mean the big cheese.

Here'a a sad quote, "We were just soldiers following orders."

Don't be too harsh... a lot of families are going to be affected."

First Franklin had been changing its product offerings, incorporating Alt-A and increasing restrictions to (or eliminating altogether) some of it's subprime programs when the initial announcement of the layoffs came on September 17, 2007.

Dismal reports on losses and lawsuits have appeared in Reuters (Merrill Lynch's painful lesson in subprime) and Bloomberg.com (First Franklin Can Pay $3.4 Million to Settle Overtime Lawsuit).

Visit our forum to read more:

"ML's First Franklin — Shock & Awe" or First Franklin.