BankUnited, F.S.B. - Wholesale, Retail

Reuters reports BankUnited, F.S.B. was closed by the OTS yesterday, with the FDIC named as Receiver. Its 86 offices reopened today as BankUnited, a newly formed federal savings bank, in a transaction facilitated by the FDIC with a consortium of investors including a management team led by John Kanas, with ownership including WL Ross & Co. LLC; Carlyle Investment Management L.L.C.; Blackstone Capital Partners V L.P.; Centerbridge Capital Partners, L.P. LeFrak Organization, Inc; The Wellcome Trust; Greenaap Investments Ltd.; and East Rock Endowment Fund. The estimated cost to the FDIC's Deposit Insurance Fund was reported at $4.9 billion.

The bank had long struggled to manage losses due largely to the high concentration of pay-option ARMs in its portfolio. Originations from both the retail and wholesale channels averaged over $278 million per month in 2007. The South Florida BizJournal said as of 2008-12-31, "BankUnited's $5.89 billion in option ARMs accounted for 51 percent of its loan portfolio." All mortgages and loans were assumed by the newly formed bank, and investors will provide $900 million to recapitalize the institution.

On 2009-03-16, the BizJournal had reported BankUnited's announcement that it would voluntary terminate its mortgage selling and servicing contract with Fannie Mae on April 1.

"The largest bank based in Florida, BankUnited said it terminated the contract to sell loans it originates to the government-run Fannie Mae because the bank is no longer active in the wholesale residential lending business."

In the same article, it was noted that Bank United had also discontinued its mortgage assistance program (MAP) at the direction of regulators. Presumably, retail origination will continue in some form with the new BankUnited as customers are directed on the FDIC's information page to contact their branch office for "all questions regarding new loans and the lending policies of BankUnited."

For more information on the government's seizure of BankUnited, F.S.B., please refer to our entry on the Bank Implode-O-Meter. See also the background article "BankUnited's Sordid History" from our featured blogger Rolfe Winkler on OptionARMegeddon.

Original Listing - 2008-12-11: From an inside source we learned today that BankUnited has laid off most of the remainder of their wholesale staff. There were between 30 and 35 people left - less than a handful remain to wind-up.

There has still been no official announcement to brokers (that we're aware of) and nothing on their web site indicates anything other than "business as usual." But our tipster confirmed wholesale stopped accepting loans about two months ago as previously reported. Employees were given notice verbally.

Original Ailing Listing - 2008-10-06: We're hearing Bank United's wholesale operations may be gone pending an announcement today. One tip bluntly states:

"I just heard from my rep that Bank United is exiting Wholesale operations and will not be accepting new applications after today."

Whether or not it will be an official public notice that the bank is exiting wholesale remains to be seen, as this may be internalized as a "refocused effort" on retail operations. From another tipster:

"In a phone conversation on Friday with our AE from Bank United we were told that Bank United will be intentionally raising their conforming interest rates to reduce the flow of new incoming business so that all AE's and Bank United employees can concentrate on their MAP program (Mortgage Assistance Program) which is designed to refinance borrowers off of the option arm they are currently in over to a fixed rate loan. We have been told in the past that Bank United 'will do eveything they can' to get borrowers out of the option arm including discounting the payoff for borrowers that no longer have sufficient equity."

That would be in keeping with the Consent Order between Bank United and the Office of Thrift Supervision (OTS) that calls for the bank to "reduce the portfolio of negative option ARM loans" among other things. Another tipster wrote, "BankUnited had a company wide lay off 9/19, and gave another group of Florida employees a "warm" layoff, that they were to be laid off in 60 days." A company press release on 2008-09-19 indicated "160 persons, or 12% of the Bank's current workforce" was cut. From a former employee:

"BankUnited wants to refinance or modify all pay option arms on their books, waiving the prepayment penalties for any borrower that wishes to do so. BKUNA released a list of approx 7500 pay option arm borrowers, and those 7500 have been bombarded with calls and letters from both numerous brokers and BankUnited competing for the refi/modification business."

Just before the job cuts were announced, the South Florida Business Journal reported a class action lawsuit had been filed on 2008-09-16 on behalf of investors alleging "false and misleading statements about the losses the company was likely to suffer from its payment option adjustable-rate mortgages (ARMs), its 'sketchy' appraisal process and its policies on second mortgages."

Update - 2008-08-27: In their annual 10K filing with the SEC, BankUnited reports it is still trying to raise the $400 million it needs to remain "well capitalized." According to the Tampa Bay Business Journal, the bank has an agreement with the Office of Thrift Supervision (OTS) to maintain capital ratios "substantially more than the minimum required ratios."

"In its filing, BankUnited said that if it doesn't raise the $400 million it has been seeking for the past few months, the OTS will downgrade the bank to adequately capitalized. This could have a "material adverse effect on BankUnited's finance position and operations," the bank stated."

The Federal Home Loan Bank (FHLB) is reviewing BankUnited's borrowings, and has informed them only $26.3 million of over $627 million in borrowing capacity is available for use. Additional restrictions imposed by the agreement with OTS include:

• Terminating its payment option adjustable-rate mortgage program, other than in wealth management and loan modification. These loans have been the source of much of the non-accrual problem at BankUnited.
• Notifying the OTS before it opens or moves any branches.
• Stopping reduced- and no-documentation loan programs.

In a Bloomberg article today, analyst David Bishop of Stifel Nicolaus & Co. said BankUnited "may be unable to survive."

Update - 2008-07-15: In a CNBC article 2008-07-14, BankUnited is one of a number of institutions indicated as being on "the danger list" of failing, according to forumulations by analyst Richard Bove at Ladenburg Thalmann. One of two ratios used in Bove's analysis looks at non-performing assets to total assets, suggesting a ratio "above 5 percent" equals danger. BankUnited has a ratio of 5.36 percent, according to the article.

From their second quarter 10Q filing on 2008-06-13:

"· We have made a strategic decision to significantly reduce our wholesale residential mortgage business. In January 2008, we closed four of our nine sales offices that were located in Arizona, California, Colorado and Oregon. In addition, we have consolidated our nine operations centers to three, which will provide the Company with greater efficiencies. In total, we have reduced our wholesale residential staff by more than 45%.

· We have transitioned to selling more loans into the secondary market rather than retaining the majority for portfolio.

· We have also significantly altered our residential loan production mix to comprise more than 50% saleable residential mortgage loans, mainly conforming agency, which are sold to FNMA, FHLMC, and other conduits.

· Going forward, wholesale lending will remain part of our business although in a smaller capacity. Its size and growth will be determined by the profitability models installed in the second quarter of fiscal 2008."

BankUnited, meanwhile, has gone shopping for more capital. From the South Florida Business Journal:

"In May, the company doubled the number of authorized shares... in order to have sufficient available shares for a $400 million stock offering."

One broker wrote us back in March about changes going on with their wholesale offerings, noting "pricing went from 6.5% making .5 on a 3 year arm for their Foreign National product to 6.5% costing me 2.5 points?" The tipster told us, "When I called my A.E. I was told they couldn't sell anything in [their] portfolio last quarter and are "pricing themselves out of the market".

A couple of topics on BankUnited have been consolidated in our Discussion Forum. Feel free to post there or add your comments here. We appreciate any additional info you can send us as well.

Update - 2008-01-28: More word is coming in regarding the timing of layoffs. This came in today:

"The crappy part about how they layed us off yesterday was some of us received our severance packages on our doorsteps before the managers were told about it and before the conference call was held. I received my severance package at 10am and the call wasn't until 11am. This company doesn't really care about the displaced employees. I have been in this business [a long time] and it was by far the worst company I have ever worked for. I agree with the other employee that I expect them to be on the imploded list by the end of the next fiscal quarter."

We will continue to update information on BankUnited as it comes in.

Original post - 2008-01-25: Reports have been coming in from across the country that BankUnited FSB of Coral Gables, FL has closed Wholesale operations. Yesterday we received word all lending west of the Mississippi would stop, and the Scottsdale AZ Operations Center was closing. Today we learn these closing include Operations Centers in Oregon, California, and Colorado. We were emailed an official notice that states in part:

"After today, we will no longer accept new loan applications. However, until the end of the day today (5:00 p.m. PST) we will accept loans and lock-ins."

To view the entire letter, click here.

In a first-quarter earnings review, they show a loss of over 25.5 million, net charge-offs of $6 million, and an additional allowance for loan losses of $118 million. Share prices have dropped from highs of $28 to below $4 at one point in the past year.

The main message from most AE's is they were told not to tell anybody anything, but we have heard they have 70 to 80 AE's across the country, with upwards of 400 Op's and management staff that could be affected. This partial shutdown is expected to cut 45% of the Division.

Their current product mix is Agency and Alt A Agency, but BankUnited was chiefly known for it's POA's, including a 'true' 90% No Doc (1 loan) Pay Option Arm. Although that product was discarded about 8 months ago, those chickens may just now be coming home to rest on the Balance Sheet.

From one former employee:

"I would say that by March if not earlier, it will all be gone so hopefully the present survivors don't get too comfy."

Senior VP (Marketing) Melissa Gracey directed us to this Press Release (.pdf) to define the closings, and rationale.

If you have any information regarding this year's volume, or current nationwide number of employees, please let us know. With such a strong Retail presense, we don't know how long this Wholesale division can last in today's lending climate.