CTX Mortgage Co. - Retail - Agency, FHA, Jumbo

Update - 2009-05-14: On April 8, 2009, the respective boards of Centex Corporation and Pulte Homes, Inc. announced their unanimous approval of a definitive merger agreement. The two companies will combine under the Pulte name in a stock-for-stock transaction valued at $3.1 billion. According to the press release, the combined operations will expand Pulte's geographic footprint to "59 markets, 29 states and the District of Columbia."

"Under the terms of the agreement, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own. Based on the closing price of Pulte stock on April 7, 2009, the transaction has a value of $10.50 per Centex share, representing a premium of 32.6% to the 20-day volume weighted average trading price of Centex's shares. The combined company currently would have an equity market capitalization of $4.1 billion and an enterprise value of $7.2 billion. Upon closing of the transaction, Pulte shareholders will own approximately 68% of the combined company, and Centex shareholders will own approximately 32%."

In the Investor Call transcript, Richard Dugas, President and Chief Executive Officer of Pulte is recorded as saying, "While it is premature to discuss specifics now, there will be significant overlap in functions and head count reductions will be part of the process." Following up to a question asked about the two companies' respective mortgage operations, Roger Cregg, Executive Vice President and Chief Financial Officer of Pulte responded:

"Yes, we would look to integrate those functions just like we will the rest of the organizations together. The details of that are forthcoming but you know we do expect to integrate the mortgage operations and financial services operations together."

We are hearing that the remnants of CTX Mortgage will likely go by the wayside. One tipster wrote, "the CTX homebuilder processing center/CTX are hearing rumors that CTX will be shut down and everything will be handled by Pulte Mortgage." The source indicated employees in the Dallas financial services office had been told to expect operations would wrap up in the next 60 days -- "by the end of summer for sure."

Read more discussion on the Pulte/Centex merger on the Home Builder Implode-O-Meter forum, or post your comments below.

Original Listing - 2008-10-31: After months on our Ailing/Watch List, CTX Mortgage was removed when a sale to Prospect Mortgage fell through (as noted in Wikipedia) and most branch offices migrated to other companies. "We're still lending" they told us repeatedly, albeit just to their own customers. Without a degree of separation from the builder/purchaser business, we interpreted CTX Mortgage was still operating. A statement by Centex CFO Cathy R. Smith during their Earnings Call on 2008-10-29 would seem to support that:

"CTX Mortgage is now solely focused on Centex home buyers and is originating FHA and GSE loans almost exclusively."

So effectively what we have now is a builder with a couple of mortgage desks 'trying' to do it's own sales department loans. The prevailing theme as reported this week by Forbes, PRNewswire, and others could not be overlooked:

"...the collapse in construction isn't good news for Centex, which slashed jobs, sold land, closed its retail mortgage business, and hoarded cash during the quarter."

From the CENTEX CORP - 10-Q -- Management's Discussion and Analysis of Financial Condition and Results of Operations:

"During July 2008, we made the decision to wind down the origination by Financial Services of mortgage loans for homes built by others as well as the refinancing of existing mortgages, which we refer to as Retail Loans. The wind-down will be executed in an orderly basis over the next several months. Financial Services, which currently operates approximately 80 retail branches, is expected to substantially complete the exit of its retail activity by the end of January 2009."

The company recorded a $44 million loss on operations for its Financial Services arm, $26 million of which was "related to the closing of the retail mortgage business." Former executives we were led to believe would remain with Centex are apparently gone as well. One tipster reported, "They have managed to keep it quiet and not hit the news here in Dallas. The President (Tim Bartosh), CFO (Bill Naryka), CIO (Tom Touhy), EVP of Sales (Danny Deaton), Chief Legal Counsel (Marty Green) - etc. ALL got their exit packages."

Original Ailing Listing - 2008-09-05: We have received the following communication from Centex spokesperson Eric Bruner:

• CTX Mortgage is in the final stages of its transition plan for its network of retail branches. The transition plan for nearly all of these branches is effectively complete at this time, with most of them successfully transferred to other mortgage lending firms.

This was provided to us by way of confirmation that the retail offices were no longer a part of CTX Mortgage. The mortgage lending arm of their financial services division will continue to originate loans exclusively in support of the builder business. This listing will be removed from our Ailing/Watch list of lenders in a few business days.

Update - 2008-08-28: Recent tips that have come in set the end date for retail (non-builder) origination offices at the end of August. Some offices have already migrated to other companies, but an official statement has not been issued. Said one tipster, "they are closed as of September 1." Another writes:

"Its been my understanding that CTX Mortgage (retail) is discontinuing all loan originating in September. The only part of CTX that is slated to continue is working directly and exclusively for their home building unit, Centex Homes."

From their 2008 first quarter 10Q filing on August 5th:

"During July 2008, we made the decision to wind down the origination by Financial Services of mortgage loans for homes built by others as well as the refinancing of existing mortgages, which we refer to as Retail Loans. The wind-down will be executed in an orderly basis over the next several months. Financial Services, which currently operates approximately 80 retail branches, is expected to substantially complete the exit of its retail activity by the end of January 2009. We estimate pre-tax charges of approximately $20 to $30 million, which will be recognized primarily in the second and third quarters of fiscal year 2009, related to severance and contract termination costs and non-cash asset impairments in connection with the closure of our retail branches."

"Substantially complete... by the end of January 2009" gives the impression the winding down will go on for quite some time.

Update - 2008-07-18: The Dallas Business Journal reported Centex is "putting its network of mortgage retail offices up for sale:"

"Centex says the mortgage retail offices impacted by the decision are not tied to the company's internal loan origination program, which is coupled with the company's home building platform."

To reinforce information we've previously reported or been given, this applies to "street-level retail offices," not the "company's internal loan origination program, which is coupled with the company's home building platform."

We were unable to reach Centex for comment.

Update - 2008-07-09: In an email to employees today (view pdf) Prospect CEO Mark Filler announced they would not be buying CTX Mortgage:

"Today, I am sorry to inform you that Prospect Mortgage and Centex Homes have failed to reach mutually acceptable terms and we are no longer moving forward with the acquisition of the CTX Mortgage retail business. We truly respect CTX Mortgage and Centex's leadership and sincerely wish them the very best. While disappointing, this does not change Prospect Mortgage's commitment to growth or our continued financial backing from Sterling Partners."

This just in from a tipster: "CTX just notified their employees this morning via a conference call that they are shutting the doors." Right behind that, we got "Prospect is NOT buying CTX; they just the the word this morning and will be shut down by end of August." Another wrote "CTX is done and prospect deal is over."

It all sounds like CTX Mortgage is no more, but a source we spoke with said employees were not let go in that conference call, but rather "left to wonder how much longer" they would have their jobs.

An official statement (view pdf) was sent to us by Centex spokesperson Eric Bruner:

"Earlier this year, Centex announced plans to restructure its mortgage operations to focus exclusively on originating mortgages for homes built by Centex. Centex has been in discussions with Prospect Mortgage for several months to transfer its retail branches that focus on non-Centex Homes-related mortgages, and those discussions have ended without the companies reaching final agreement. In a conference call with employees this morning, Centex told employees that it intends to work with its retail branch teams to facilitate a smooth transition of its retail branches to other mortgage companies over time. In the meantime, CTX Mortgage continues to provide full support to its retail branches and loan officers, including accepting loan applications and offering rate locks. And for its builder-focused platform, CTX Mortgage will continue as a full-service lender."

That statement echoes the message from Centex CEO Tim Bartosh in an email (view pdf) sent to employees this morning:

"When we made the difficult decision to exit our retail mortgage operations several months ago, one of our principal considerations was to ensure the continuity of business for our retail team members. After making steady progress in our discussions with Prospect Mortgage, we were unable to overcome certain unexpected issues and we will not be moving ahead to complete that transaction...

For any branches that are unable to find a new mortgage partner, we'll work with the branch manager on an orderly wind-down and transition of our loan officers to new opportunities."

Bartosh's memo goes on to mention they will hold two "town hall" meetings tomorrow to address employee questions.

Centex shares (CTX), originally up at mid-day, started sliding by mid-afternoon.

We were not told how many CTX Mortgage employees will be affected by the offing of the retail mortgage branches. Please contact us if you have more detail.

Update - 2008-05-06: Multiple sources have told us that the CTX acquisition by Prospect is now complete. We have been told CTX Mortgage President and CEO Timothy Bartosh is now an employee of Prospect Mortgage, LLC, and Daniel Deaton, E.V.P. of National Retail Production, along with all others in the non-builder retail origination branches.

Others we spoke to indicated that the builder-specific origination branches were also part of the deal. It remains unclear if Kevin Gillespie, S.V.P. of Builder Loan Production remains behind to maintain that business channel some people say no. One tipster writes:

"SVP of Builder loan production remains an employe fo Centex Corp and will handle the ABA between Prospect Mortgage and Centex."

A third-party source familiar with the company we spoke with today indicated the builder lending branches (and Gillespie) were also now with Prospect.

Centex spokesperson Eric Bruner could neither confirm or deny any of this development, and sent us this statement:

"As we've said on several recent occasions, Centex is in discussions with Prospect concerning its retail mortgage operations. Those discussions are ongoing."

Update - 2008-03-20: This just in from an email:

"CTX will now be completely sold to Prospect Mortgage including all builder branches. They will operate under the CTX brand name for now but will now be financed through Prospect's lending facility and not Centex. This just announced through a conference call held earlier today about a month after reporting they would be selling only their retail division to Prospect."

Calls to CTX spokesperson Eric Bruner were not returned. Given the ambiguity surrounding Prospect's take over, we have reason to believe that CTX Mortgage will make an announcement soon that all business going forward will be under Prospect's operations.

Update -- 2008-02-07: From an email in today:

"CTX has been sold to Prospect. They had a meeting last night with their chairman's circle in which they flew in their top producers from all over the country to Dallas. At the meeting they introduced them to the big wigs with Prospect which is a division of Sterling Capital."

I'm sure there will be a certain amount of due diligence associated with this deal, so let's start by opening the first 'can-of-worms.' Other members of the media are watching CTX closely, and this initial report was sent to us:

"CTX in [city name] was bleeding loan officers, especially after they shut down their construction lending division. Borrowers who took out construction-to-permanent financing ("one time close" product) don't know it yet, but the permanent financing they already paid for with their origination fees is no longer available. When construction is complete they will be looking for financing (and probably filing lawsuits). The local regional manager called a meeting in January and promised loan officers that if they hung in it would be "Christmas in July" next week. Now they have been told that "Christmas" has been put off until March."

Part of the above statement may be paranoia, as we reported earlier CTX has forward commitment for $74.4 million against those perm loans with their credit facility (figures from their 3rd Quarter 10Q). But now there are two points of view, and only time will tell which scenario plays out.

Original Post -- 2008-02-06: Following in the wake of a dismal earnings release today by parent Centex Corp., employees learned the retail lending division, CTX Mortgage is in "discussions" to be sold to Prospect Mortgage Co., LLC, a unit of Sterling Capital Partners. (Revenues for the 2007 3rd quarter of $1.9 billion and a net loss of nearly $1 billion were reported.)

Back in July 2006, the Company sold "Home Equity" for $518.5 million in cash to be renamed Nationstar Mortgage, LLC. We posted Nationstar to the Imploded List 14 months later.

In a recent email communication to employees, Centex says:

"In recent months, we have communicated frequently to keep you abreast of the challenges facing our mortgage company and the financial services industry. Given the volatility of the market and the capital requirements needed to fund CTX volume, we reluctantly decided that the time had come to consider options for our retail mortgage platform. To better ensure that our retail branches receive the capital and other support they need to compete effectively in this new environment, we decided it was time to transfer these operations to a company devoted more exclusively to financial services. As we have communicated, many possibilities were explored in an effort to best position the CTX retail platform for future success."

A reader told us "Centex is supposedly still keeping CTX to do the loans from the builder new constr. sales." The following statement is taken from their 3rd Quarter 10Q:

"As of December 31, 2007, Financial Services is committed, under existing construction loan agreements, to fund $74.4 million in addition to the construction loan balance shown above. Financial Services has ceased origination of new construction loans; however, it will fulfill its existing funding commitments."

According to company spokesperson Eric Bruner, CTX Mortgage has 58 retail branch offices independent of the building finance operations. The number of employees in those locations was not immediately available. Bruner said they "were working toward a solution that will balance the company's (Centex) essential need for in-house mortgage services that support their mission of selling homes." He added that "no decision has been made" but acknowledged that they were involved "in discussions" regarding the retail unit. Per their web site, CTX Mortgage originated almost $14 billion of loans in fiscal 2007 with over 200 offices.

Contact us if you can provide additional information. Certainly a company worth watching.