Residential Capital LLC ( fka RDCC)

[Enterprising Investor]

Judge Poised to Approve ResCap Loan Sale to Berkshire (11/19/12)

A judge on Monday said he plans to approve Residential Capital LLC's sale of a loan portfolio to Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB), the undercard in ResCap's two-pronged transaction that should fetch $4.5 billion for the mortgage servicer's creditors.

The main event, a $3 billion sale of ResCap's mortgage-servicing platform to Ocwen Financial Corp. (OCN) and Walter Investment Management Corp. (WAC), has been attacked by a divergent collection of parties, from the U.S. government to a grass-roots group representing individual mortgage holders to ResCap's government-controlled parent, Ally Financial Inc. Many are concerned that Ocwen's purchase doesn't force the company to honor ResCap's obligations to protect homeowners with mortgage problems. ResCap settled or pushed back to later dates some of the objections.

Members of the Neighborhood Assistance Corp. of America, which provides housing assistance and counseling to financially troubled borrowers, protested outside the Manhattan courthouse, holding signs and wearing yellow shirts with the words "stop loan sharks" on the fronts and "sharks beware" on the back. Many of them filled two extra courtrooms broadcasting audio and video of the hearing. Judge Martin Glenn of U.S. Bankruptcy Court in Manhattan told a lawyer for NACA that he wasn't sure that his organization even had standing to object to the sale because its contract with ResCap wasn't being transferred to Ocwen. NACA has also argued that because many of Ocwen's mortgage-servicing employees are based overseas, the ResCap deal would cost American jobs.

But before the arguments over the Ocwen deal began bogging the afternoon down, Judge Glenn said he planned to approve Berkshire's $1.5 billion purchase of "legacy" mortgage loans that ResCap is holding to sell. The judge said before he officially approves the deal, ResCap must work out issues related to the "backup" bid that's in place in case the Berkshire Hathaway bid falls through, and also give him the final documents so he can review recent changes.

"Your honor, we've managed to address $1.5 billion of the $4.5 billion in less than 20 minutes," said Morrison & Foerster LLP's Gary Lee, a ResCap lawyer, on Monday morning. Mr. Lee pointed out that the winning bids for the two portfolios generated about $1 billion more than the opening bids before last month's auction.

"This far exceeds everybody's expectations on the debtor's side," Mr. Lee said.

The debate over the mortgage-servicing platform began soon after and was far more plodding, as was expected considering the business includes 2.4 million mortgages with total unpaid balances of more than $370 billion. Mr. Lee said he would use an afternoon break as an opportunity to set up a meeting between NACA and Ocwen over the organization's concerns for the borrowers it represents.

ResCap filed for Chapter 11 protection May 14 as bond-related payments loomed and litigation over soured mortgage- backed securities mounted. The move is intended to help Ally, which isn't part of the bankruptcy, sever itself from an estimated $400 million to $1.25 billion in liabilities related to ResCap's troubles.

The backbone of ResCap's bankruptcy exit strategy is the sale of the loans and mortgage platform that were the subject of Monday's hearing.

Much of the concern about Ocwen is related to whether the company will comply with the historic national mortgage settlement that ResCap and other servicers signed onto along with the federal government and 49 state attorneys general.

The settlement called for an overhaul of mortgage servicing practices after widespread allegations of fraud. Ocwen has said it would use its "best efforts" to "address" the nationwide settlement as part of its ResCap purchase.

Monday's hearing appeared poised to spill into Tuesday.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

-Jacqueline Palank in Washington contributed to this article.

http://www.foxbusiness.com/news/2012/11/19/judge-poised-to-approve-rescap-loan-sale-to-berkshire/