ITEM 1. BUSINESS
General
HomeSide, Inc. (the "Company" or "HomeSide"), through its indirect, wholly-owned subsidiary Homeside Lending, Inc., is one of the largest full-service residential mortgage banking companies in the United States. HomeSide's strategy emphasizes variable cost mortgage origination and low cost servicing. HomeSide's mortgage loan production volume, excluding bulk purchases, was $20.5 billion for the period from March 1, 1997 to February 10, 1998 and $20.9 billion for the period from March 16, 1996 to February 28, 1997. Its servicing portfolio was $100.0 billion on February 10, 1998 and $90.2 billion on February 28, 1997. HomeSide ranks as the 5th largest originator and 6th largest servicer in the United States for calendar year 1997 based on data published by Inside Mortgage Finance. Effective April 30, 1998, HomeSide amended its charter to change its name to HomeSide International, Inc.
The residential mortgage market totaled over $3.9 trillion in 1996 and is the second largest debt market in the world, exceeded only by the United States Treasury market. The residential mortgage market has grown at a compound annual rate of approximately 8% since 1985. HomeSide competes in a mortgage banking market which is highly fragmented with no single company controlling or dominating the market. In 1997, the largest originator represented 6.5% of the market and the largest servicer represented 5.0%, while the top 30 originators and servicers represented 48.0% and 48.7% of their markets, respectively, based on data published by Inside Mortgage Finance. Residential mortgage lenders compete primarily on the basis of loan pricing and service, making effective cost management essential. The industry has experienced rapid consolidation which has been accelerated by the introduction of significant technology improvements and the economies of scale present in mortgage servicing. The top 10 mortgage loan servicers have increased their aggregate market share from 16.6% in 1990 to 30.2% in 1997.
HomeSide's business strategy is to increase the volume of its loan originations and the size of its servicing portfolio while continuing to improve operating efficiencies. In originating mortgages, HomeSide focuses on variable cost channels of production, including correspondent, broker, consumer direct, affinity, and co-issue sources. HomeSide also pursues strategic relationships with other production sources to acquire and service residential mortgage loans. Management believes that these variable cost channels of production deliver consistent origination opportunities for HomeSide without the fixed cost investment associated with traditional retail mortgage branch networks. HomeSide believes that its ongoing investment in technology will further enhance and expand existing processing capabilities and improve its efficiency. Based on independent surveys of direct cost per loan and loans serviced per employee, management believes that HomeSide has been one of the industry's most efficient mortgage servicers. The Company's average cost per employee approximates the average cost per employee of its major competitors. HomeSide plans to build its core operations through (i) improved economies of scale in servicing costs; (ii) increased productivity using proprietary technology; and (iii) expanded and diversified variable cost origination channels. In addition, HomeSide intends to pursue additional loan portfolio acquisitions and strategic origination relationships similar to its existing agreement with BankBoston, N.A. ("BKB").
HomeSide's business activities consist primarily of:
Mortgage production: origination and purchase of residential single family mortgage loans through multiple channels including correspondents, strategic partners (BKB and Barnett), mortgage brokers, co-issue partners, direct consumer telemarketing and affinity programs;
Servicing: administration, collection and remittance of monthly mortgage principal and interest payments, collection and payment of property taxes and insurance premiums and management of certain loan default activities;
Secondary marketing: sale of residential single family mortgage loans as pools underlying mortgage-backed securities guaranteed or issued by governmental or quasi-governmental agencies or as whole loans or private securities to investors; and
Risk management: management of a program designed primarily to protect the economic performance of the servicing portfolio that could otherwise be adversely affected by loan prepayments due to declines in interest rates.
Production
HomeSide, Inc. participates in several origination channels, with a focus on wholesale origination. Since the acquisition of BancBoston Mortgage Company ("BBMC"), wholesale channels (correspondent, co-issue, and broker) have represented more than 95% of HomeSide's total production. Excluding the volumes purchased from BKB and Barnett Bank, N.A. ("Barnett"), no single source within the correspondent or broker channels accounted for more than 3% of total production during the period from March 1, 1997 to February 10, 1998 and 2% of total production during the period from March 16, 1996 to February 28, 1997. HomeSide's other origination channels include telemarketing, direct mail campaigns and other advertising, and mortgages related to affinity group and co-branding partnerships. HomeSide also purchases servicing rights in bulk from time to time. This multi-channel production base provides access to and flexibility among production channels in a wide variety of market and economic conditions. The following table sets forth production detail by HomeSide's origination channels (in millions):
Residential Loan Production by Channel
For the Period From For the Period From March 1, 1997 to March 16, 1996 to February 10, 1998 February 28, 1997 ----------------- ----------------- Correspondent $ 13,304 $ 11,113 Co-issue 5,584 8,222 Broker 1,305 843 -------------------------------------- Total wholesale 20,193 20,178 Direct 337 700 -------------------------------------- Total production 20,530 20,878 Bulk acquisitions 3,446 4,073 ====================================== Total production and acquisitions $ 23,976 $ 24,951 ======================================
HomeSide competes nationwide by offering a wide variety of mortgage products designed to respond to consumer needs and tailored to address market competition. HomeSide is primarily an originator of fixed rate 15- and 30-year mortgage loans, which collectively represented 76% of the total production in the period from March 1, 1997 to February 10, 1998 and 73% of the total production in the period from March 16, 1996 to February 28, 1997. HomeSide also offers other products, such as ARMs, balloon and jumbo mortgages.
HomeSide's national loan production operation has resulted in geographically diverse originations, enabling HomeSide to diversify its risk across many markets in the United States. HomeSide's servicing portfolio composition reflects its production markets. The largest segments of the servicing portfolio by state on February 10, 1998 were Florida (17.2% of unpaid principal balance of production), California (15.3%), Massachusetts (7.0%), Texas (6.3%), and Maryland (4.6%). The largest segments of the servicing portfolio by state on February 28, 1997 were Florida (18.7% of unpaid principal balance of production), California (15.4%), Massachusetts (8.4%), Texas (6.1%), and Maryland (4.6%).
The mortgage banking industry is generally subject to seasonal trends. These trends reflect the general national pattern of sales and resales of homes. Sales and resales of homes typically peak during the spring and summer seasons and decline to lower levels from mid-November through February. Refinancings tend to be less seasonal and more closely related to changes in interest rates. Historically, changes in the interest rate environment have mitigated the impact of seasonality on HomeSide's results of operations. In addition, delinquency rates typically rise in the winter months, which result in higher servicing costs. However, late charge income has historically been sufficient to offset such incremental expenses.
HomeSide's production strategy is to maintain and improve its reputation as one of the largest, most cost effective originators of mortgage loans nationwide. HomeSide pursues this strategy through an emphasis on wholesale and centralized direct production, the use of contract and delegated underwriters, a high degree of automation in its processing and direct originations and quality control. HomeSide plans to expand production through its low cost wholesale and direct channels and to continue to streamline its production operation. HomeSide plans to continue to pursue bulk acquisitions in the secondary market for mortgage servicing rights on an opportunistic basis.
Wholesale Production
Correspondent Production
Through its correspondent program, HomeSide purchases loans from approximately 500 commercial banks, savings and loan associations, licensed mortgage lenders and other financial intermediaries. The correspondent takes the mortgage application and processes the loan, which is either underwritten through contract underwriters or, in some cases, the correspondent to whom underwriting authority has been delegated. Closing documents are submitted to HomeSide for legal review and funding. The participants in this program are prequalified and monitored on an ongoing basis by HomeSide. If a correspondent subsequently fails to meet HomeSide's requirements, HomeSide typically terminates the relationship. Correspondents are also required to repurchase loans in the event of fraud or misrepresentation in the origination process and for certain other reasons.
Co-Issue Production
Co-issue production, which represents the purchase of servicing rights from a correspondent under contracts to deliver specified volumes on a monthly or quarterly basis, is another main source of HomeSide's production. The co-issue correspondent controls the entire loan process from application to closing. This arrangement particularly suits large originators who have the ability to deliver on an automated basis. Reflecting this delegated underwriting authority, the co-issue correspondent is obligated to make certain representations and warranties and is required to repurchase loans in the event of fraud or misrepresentation in the origination process or for certain other reasons.
Broker Production
Under its broker program, HomeSide funds loans at closing from a network of approximately 450 mortgage brokers nationwide. The broker controls the process of application and loan processing. A pre-closing quality control review is performed by HomeSide to verify the borrower's credit. All loans originated through brokers are underwritten by HomeSide's approved contract underwriters. Loans are funded by HomeSide and may be closed in either the broker's name or HomeSide's name. Participants in this program prequalify on the basis of creditworthiness, mortgage lending experience and reputation. Each broker is subject to annual and ongoing reviews by HomeSide.
Direct Production
HomeSide's direct production includes the use of telemarketing to solicit loans from several sources, including refinancing of mortgage loans in HomeSide's existing servicing portfolio, leads generated from direct mail campaigns and other advertising, and mortgages related to affinity group and co-branding partnerships. HomeSide believes that these efforts will have a significant effect on increasing the percentage of loans captured by the direct division from loan prepayments in HomeSide's servicing portfolio. Refinancing retention represents the percentage of loans refinanced through HomeSide's direct channel that were serviced by HomeSide prior to refinancing.
Bulk Acquisition
Bulk acquisition is the large scale purchase of mortgage servicing rights. In connection with such acquisitions, HomeSide does not purchase the underlying mortgage loans which were originated by other originators. HomeSide may purchase servicing rights on an exclusive basis or through a competitive bidding process and plans to continue this practice on an opportunistic basis in order to grow its servicing portfolio and benefit from economies of scale.
Underwriting and Quality Control
Underwriting
HomeSide's loans are underwritten in accordance with applicable Fannie Mae, FHLMC, VA, and FHA guidelines, as well as certain private investor requirements. The underwriting process is organized by origination channel and by loan type. HomeSide currently employs underwriters with an average of ten years of underwriting experience.
HomeSide requires approximately 80% of its correspondent lenders to have their loans underwritten by third party contract underwriters prior to purchase. These contract underwriters are designated by HomeSide and include General Electric Capital Corp., Mortgage Guaranty Insurance Corp., and Private Mortgage Insurance Corp. HomeSide grants delegated underwriting status to the remaining approximately 20% of correspondents which enables the correspondents to submit conventional loans to HomeSide without prior underwriting approval. Generally, HomeSide grants delegated underwriting status to its larger correspondents who meet financial strength, delinquency, underwriting and quality control standards, and such correspondents are monitored regularly. The FHA and VA require that loans be underwritten by the originating lender on an Agency-approved or delegated basis. If issuance of FHA guarantees or VA insurance certificates is denied, the correspondent must repurchase the loan.
HomeSide's underwriting process for its retail production operation is fully automated. The automated underwriting technology incorporates credit scoring and appraisal evaluation systems. These systems employ rules-based and statistical technologies to evaluate the borrower, the property and salability of the loan to the secondary market. HomeSide believes that these technologies have contributed to improved productivity and reduced underwriting and processing turnaround time.
Quality Control
HomeSide maintains a compliance and quality assurance department that operates independently of the production, underwriting, secondary marketing and loan administration department. For its production compliance process, HomeSide randomly selects a statistical sample of all closed loans monthly for review. The sample generally comprises 3.5% - 4% of all loans closed each month. This review includes a credit scoring and reunderwriting of such loans, ordering second appraisals on 10% of the sample, reverifying funds, employment and final applications and reordering credit reports on all loans selected. In addition, a full underwriting review is conducted on (i) all jumbo loans that go into default during the first thirty-six months from the date of origination and (ii) all other loans that go into default during the first six months from the date of origination. Document and file reviews are also undertaken to ensure regulatory compliance. In addition, random reviews of the servicing portfolio, covering selected aspects of the loan administration process, are conducted.
HomeSide monitors the performance of the underwriting department through quality assurance reports, HUD/VA reports and audits, reviews and audits by regulatory agencies, investor reports and mortgage insurance company audits. According to HomeSide's quality control findings, less that 1% of its loans have underwriting issues that affect salability to the secondary market. Flaws in these loans are generally corrected; otherwise, the holder of the mortgage-backed security is indemnified against future losses resulting from such flaws by HomeSide or, ultimately, the originating correspondent. Correspondents or co-issue partners are required to repurchase any flawed loans originated by them.
Secondary Marketing
HomeSide customarily sells all loans that it originates or purchases while retaining the servicing rights to such loans. HomeSide aggregates mortgage loans into pools and sells these pools, as well as individual mortgage loans, to investors principally at prices established under forward sales commitments. HomeSide's FHA and VA loans are generally pooled and sold in the form of GinnieMae ("GNMA") Mortgage Backed Securities. Conforming conventional mortgage loans are generally pooled and exchanged under the purchase and guarantee programs sponsored by Fannie Mae and FHLMC for Fannie Mae Mortgage Backed Securities or FHLMC participation certificates, respectively. HomeSide pays certain guarantee fees to the Agencies in connection with these programs and then sells the GNMA, Fannie Mae and FHLMC securities to securities dealers. A limited number of mortgage loans (i.e. non-conforming loans) are sold to private investors. For the period from March 1, 1997 to February 10, 1998, approximately 92% of the mortgage loans originated by HomeSide were sold to GNMA (47%), Fannie Mae (31%), and FHLMC (14%). For the period from March 16, 1996 to February 28, 1997, approximately 78% of the mortgage loans originated by HomeSide were sold to GNMA (38%), Fannie Mae (27%), and FHLMC (13%). The remaining were sold to private investors.
The sale of mortgage loans may generate a gain or loss to HomeSide. Gains or losses result primarily from two factors. First, HomeSide may purchase a loan at a price that may be higher or lower than HomeSide would receive if it immediately sold the loan in the secondary market. These pricing differences occur principally as a result of competitive pricing conditions in the primary loan origination market. Second, gains or losses may result from fluctuations in interest rates that create changes in the market value of the loans or commitments to purchase loans, from the time the interest rate commitment is given to the mortgagor until the loan is sold to an investor.
HomeSide assesses the interest rate risk associated with outstanding commitments that it has extended to fund loans and hedges the interest rate risk of these commitments based upon a number of factors, including the remaining term of the commitment, the interest rate at which the commitment was provided, current interest rates and interest rate volatility. HomeSide constantly monitors these factors and adjusts its hedging on a daily basis as needed. HomeSide uses the Quantitative Risk Management system, a sophisticated hedging, reporting and evaluation system, which has the ability to perform analyses under various interest rate scenarios. HomeSide's interest rate risk is currently hedged using a combination of forward sales of mortgage backed securities and over-the-counter options, including both puts and calls, on fixed income securities. HomeSide generally commits to sell to investors for delivery at a future time for a stated price all of its closed loans and a percentage of the mortgage loan commitments for which the interest rate has been established. HomeSide aims to price loans competitively, hedge the interest rate risk of loan originations and sell loans on a break-even basis. For the period from March 1, 1997 to February 10, 1998 and the period from March 16, 1996 to February 28, 1997, HomeSide has not experienced secondary marketing losses on an aggregate basis.
HomeSide's policy is to sell mortgage loans on a non-recourse basis. However, in the case of VA loans used to form GNMA pools, the VA's loan guarantees do not cover the entire principal balance of the loan and HomeSide is responsible for losses which exceed the VA's guaranteed limitations. In connection with HomeSide's loan exchanges and sales, HomeSide makes representations and warranties customary in the industry relating to, among other things, compliance with laws, regulations and program standards, and to the accuracy of information. In the event of a breach of these representations and warranties, HomeSide typically corrects such problems, but, if the problems cannot be corrected, may be required to repurchase such loans. In cases where loans are originated by a correspondent, HomeSide may sell the flawed loan back to the correspondent under a repurchase obligation.
Loan Servicing
HomeSide derives its revenues predominantly from its servicing operations. HomeSide anticipates that the sale of servicing rights will not be a significant component of its business strategy in the future. Since its formation, HomeSide has also maintained a risk management program designed to protect, within certain parameters, the economic value of its servicing portfolio, which is subject to prepayment risk when interest rates decline, providing mortgagors with refinancing opportunities.
Loan servicing includes collecting payments of principal and interest from borrowers, remitting aggregate loan payments to investors, accounting for principal and interest payments, holding escrow funds for payment of mortgage related expenses such as taxes and insurance, making advances to cover delinquent payments, inspecting the mortgaged premises as required, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, and other miscellaneous duties related to loan administration. HomeSide collects servicing fees from monthly mortgage payments. These fees generally range from 0.25% to 0.50% of the declining principal balances of the loans per annum. HomeSide's weighted average servicing fee including ancillary income was 0.439% for the period from March 1, 1997 to February 10, 1998 and 0.431% for the period from March 16, 1996 to February 28, 1997. HomeSide also maintains certain subservicing relationships whereby servicing is performed by another servicer under an agreement with HomeSide, which remains contractually responsible for servicing the loans. Subservicing relationships are often entered into as part of a bulk servicing acquisition where the selling institution continues to perform servicing until the loans are transferred to the purchasing institution.
HomeSide's servicing strategy is to continue to build its mortgage servicing portfolio and benefit from the economies of scale inherent in the business. HomeSide services substantially all of the mortgage loans that it originates. In addition, HomeSide purchases the rights to service mortgage loans originated by other lenders.
As part of the BMC Acquisition, HomeSide acquired a full-service mortgage company in Hawaii, Honolulu Mortgage Co. Honolulu Mortgage's servicing portfolio totaled $1.9 billion at November 30, 1996 and its loan production was $257.4 million from its acquisition on May 31, 1996 to February 28, 1997. In February 1997, Honolulu Mortgage Co. sold substantially all its assets to an unaffiliated third party. The sale did not materially affect HomeSide's financial results.
HomeSide's servicing strategy is also to enhance the profitability of its servicing activities through low cost and efficient processes. This strategy is pursued through highly automated, cost effective processing systems, strategic outsourcing of selected servicing functions and effective control of delinquencies and foreclosures. HomeSide outsources to third party vendors functions relating to insurance, taxes and default management, contributing to HomeSide's ability to maintain a highly variable cost structure. Using a variety of factors, including loans serviced per employee and direct cost per loan, management believes that HomeSide is one of the nation's most efficient servicers based on industry surveys. Management believes that its low cost servicing provides it with a competitive advantage in the industry.
Servicing Portfolio Composition
HomeSide originates and purchases servicing rights for mortgage loans nationwide. The broad geographic distribution of HomeSide's servicing portfolio reflects the national scope of HomeSide's originations and bulk servicing acquisitions. The nine largest states accounted for 64.5% of the outstanding unpaid principal balance of HomeSide's total servicing portfolio on February 10, 1998, while the largest volume by state is Florida with a 17.2% share of the total portfolio on February 10, 1998. The nine largest states accounted for 66.9% of the outstanding unpaid principal balance of HomeSide's total servicing portfolio on February 28, 1997, while the largest volume by state is Florida with a 18.7% share of the total portfolio on February 28, 1997. HomeSide actively monitors the geographic distribution of its servicing portfolio to maintain a mix that it deems appropriate and makes adjustments as it considers necessary.
The following table sets forth the geographic distribution of the Company's servicing portfolio as of February 10, 1998 and February 28, 1997:
Servicing Portfolio by State (a)
At February 10, 1998 At February 28, 1997 ------------------------------------------------------- (dollars in millions) UPB % of UPB UPB % of UPB -------------------------------------------------------
Florida $ 16,664 17.2% $ 16,559 18.7% California 14,858 15.3 13,686 15.4 Massachusetts 6,792 7.0 7,383 8.4 Texas 6,096 6.3 5,434 6.1 Maryland 4,424 4.6 4,079 4.6 Georgia 3,720 3.8 3,427 3.9 Virginia 3,377 3.5 3,218 3.6 Illinois 3,729 3.8 2,913 3.3 New York 2,939 3.0 2,517 2.9 Other (b) 34,327 35.5 29,244 33.1 ====================================================== Total $ 96,926 100.0% $ 88,460 100.0% ======================================================
- ------------- (a) Servicing statistics are based on loans serviced by HomeSide and exclude loans purchased not yet on servicing system. (b) No other state represents more than 2.9% of HomeSide's servicing portfolio. At February 10, 1998,
HomeSide's servicing portfolio consisted of $74.9 billion of FHA/VA servicing and $25.0 billion of conventional servicing. At February 28, 1997, HomeSide's servicing portfolio consisted of $29.4 billion of FHA/VA servicing and $59.0 billion of conventional servicing.
The weighted average interest rate of the loans in the Company's servicing portfolio at February 10, 1998 was 7.89% and at February 28, 1997 was 7.92%. HomeSide's servicing portfolio of loans was stratified by interest rate as follows:
Loan Servicing Credit Issues
HomeSide is affected by loan delinquencies and defaults on loans that it services. Under certain types of servicing contracts, particularly contracts to service loans that have been pooled or securitized, HomeSide must forward all or part of the scheduled payments to the owner of the loan, even when loan payments are delinquent. Also, to protect their liens on mortgaged properties, owners of loans usually require a servicer to advance scheduled mortgage and hazard insurance and tax payments even if sufficient escrow funds are not available. HomeSide is generally reimbursed, subject to certain limitations with respect to FHA/VA loans as described below, by the mortgage owner or from liquidation proceeds for payments advanced that the servicer is unable to recover from the mortgagor, although the timing of such reimbursements is typically uncertain. In the interim, HomeSide absorbs the cost of funds advanced during the time the advance is outstanding. Further, HomeSide bears the increased costs of collection activities on delinquent and defaulted loans. HomeSide also foregoes servicing income from the time such loans become delinquent until foreclosure, when, if any proceeds are available, HomeSide may recover such amounts. Delinquency rates typically rise in the winter months, which result in higher servicing costs. However, late charge income has historically been sufficient to offset such incremental expenses.
HomeSide periodically incurs losses attributable to servicing FHA and VA loans for investors, including actual losses for final disposition of loans that have been foreclosed or assigned to the FHA or VA and accrued interest on such FHA or VA loans for which payment has not been received. For HomeSide, servicing losses on investor-owned loans and related foreclosure expenses totaled $22.0 million for the period March 1, 1997 to February 10, 1998, and $17.9 million for the period from March 16, 1996 to February 28, 1997, primarily representing losses on VA loans. The VA guarantees the initial losses on a loan. The guaranteed amount generally ranges from 20% to 35% of the original principal balance. Before each foreclosure sale, the VA determines whether to bid by comparing the estimated net sale proceeds to the outstanding principal balance and the servicer's accumulated reimbursable costs and fees. If this amount is a loss and exceeds the guaranteed amount, the VA typically issues a no-bid and pays the servicer the guaranteed amount. Whenever a no-bid is issued, the servicer absorbs the loss, if any, in excess of the sum of the guaranteed principal and amounts recovered at the foreclosure sale. HomeSide's historical delinquency and foreclosure rate experience on VA loans has generally been consistent with that of the industry.
Management believes that it has an adequate level of reserve based on HomeSide's servicing volume, portfolio composition, credit quality and historical loss rates, as well as estimated future losses.
The following table sets forth HomeSide's delinquency and foreclosure experience:
Servicing Portfolio Delinquencies (Percent by Loan Count)
At February 10, At February 28, 1998 1997 --------------- ----------------
Delinquent Mortgage Loans (at end of period) 30 Days 3.52% 3.27% 60 Days 0.78 0.69 90 Days 0.72 0.54 Total Delinquencies 5.02% 4.50%
Foreclosure Pending (at end of period) 0.74% 0.72%
Servicing Portfolio Hedging Program
The value of HomeSide's servicing portfolio is subject to volatility in the event of unanticipated changes in prepayments. As interest rates increase, prepayments by mortgagors decrease as fewer owners refinance, increasing expected future cash flows from servicing revenue. Conversely, as interest rates decrease, prepayments by mortgagors increase as homeowners seek to refinance their mortgages, reducing expected future cash flows from servicing revenues on those prepaid mortgages. Since the value of servicing rights is based on the net present value of future cash flows, the value of the portfolio decreases in a declining interest rate environment and increases in a rising rate environment.
HomeSide's risk management policy is designed to minimize exposure to loss in the value of the servicing portfolio caused by prepayments due to declines in interest rates. The servicing portfolio is valued using market discount rates and market consensus prepayment speeds, among other variables. The value is then analyzed under various interest rate scenarios that help HomeSide estimate its exposure to loss. This potential loss exposure determines the hedge profile, which is monitored daily and may be adjusted to reflect significant moves in key variables such as interest rate and yield curve changes and revised prepayment speed assumptions. Results of the risk management program depend on a variety of factors, including the hedge instruments typically issued by HomeSide, the relationship between mortgage rates and Treasury securities and certain other factors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - HomeSide - for the period from March 1, 1997 to February 10, 1998 and the period from March 16, 1996 to February 28, 1997- Results of Operations - Risk Management Activities".
The FASB has been evaluating the accounting for derivative financial instruments and hedging activities. The FASB has issued an exposure draft and numerous comments have been received. It is unclear what changes will ultimately be made to such exposure draft. Under current practice, derivative financial instruments may be accounted for as hedges with changes in the value deferred as a component of the asset or liability being hedged, provided the instruments are designated as a hedge and reduce exposure to loss with a high correlation. Management of HomeSide is unable to predict what effect, if any, changes in accounting principles would have on HomeSide's financial statements or HomeSide's use of hedge accounting.
Servicing Integration
HomeSide intends to convert the entire servicing platform to its proprietary software. This proprietary servicing technology accommodates all areas of loan servicing, including loan setup and maintenance, cashiering, escrow administration, investor accounting, customer service and default management. The platform is mainframe based, with on-line, real-time architecture and is supported by an experienced staff of over 30 technology providers.
HomeSide expects to achieve significant competitive advantages over time by converting to the proprietary servicing software, which is expected to cost less to operate and is configured to accommodate growth more efficiently than HomeSide's current outsourced system. Once the conversion has been completed, this architecture is expected to support HomeSide's portfolio growth up to approximately twice the number of loans serviced on a single system. The system is also expected to permit continued development of workflow and other client-server applications, contributing to increased productivity.
At February 10, 1998 and February 28, 1997, approximately 512,732 and 406,221 loans, respectively, were serviced on the proprietary system at HomeSide's San Antonio facility. The remainder of the loans serviced at the Jacksonville facility is expected to be transferred by the end of calendar year 1998.
Regulation
HomeSide's mortgage banking business is subject to the rules and regulations of HUD, FHA, VA, Fannie Mae, FHLMC, GNMA and other regulatory agencies with respect to originating, processing, underwriting, selling, securitizing and servicing mortgage loans. In addition, there are other federal and state statutes and regulations affecting such activities. These rules and regulations, among other things, impose licensing obligations on HomeSide, prohibit discrimination and establish underwriting guidelines which include provisions for inspections and appraisals, require credit reports on prospective borrowers and set maximum loan amounts. Moreover, lenders such as HomeSide are required annually to submit audited financial statements to Fannie Mae, FHLMC, GNMA and HUD and to comply with each regulatory entity's own financial requirements. HomeSide's business is also subject to examination by Fannie Mae, FHLMC and GNMA and state regulatory agencies at all times to assure compliance with applicable regulations, policies and procedures.
Mortgage origination activities are subject to the provisions of various federal and state statutes including, among others, the Equal Credit Opportunity Act, the Federal Truth-in Lending Act, RESPA, the Fair Housing Act, and the regulations promulgated thereunder, which among other provisions, prohibit discrimination, prohibit unfair and deceptive trade practices and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs, limit fees and charges paid by borrowers and lenders, and otherwise regulate terms and conditions of credit and the procedures by which credit is offered and administered. Many of the aforementioned regulatory requirements are designed to protect the interests of consumers, while others protect the owners or insurers of mortgage loans. Failure to comply with these requirements can lead to loss of approved status, termination of servicing contracts without compensation to the servicers, demands for indemnification or loan repurchases, class action lawsuits and administrative enforcement actions. Such regulatory requirements are subject to change from time to time and may in the future become more restrictive, thereby making compliance more difficult or expensive or otherwise restricting HomeSide's ability to conduct its business as it is now conducted.
During the period that BKB or Barnett, or any of their subsidiaries, held a material ownership interest in HomeSide, HomeSide and its subsidiaries (i) were under the jurisdiction, supervision, and examining authority of the OCC, and (ii) could only engage in activities that were part of, or incidental to, the business of banking. The OCC has specifically ruled that mortgage banking is a proper incident to the business of banking.
There are various other state and local laws and regulations affecting HomeSide's operations. HomeSide is licensed in those states that require licensing to originate, purchase and/or service mortgage loans. Conventional mortgage operations may also be subject to state usury statutes. FHA and VA loans are exempt from the effect of such statutes.
Competition
Mortgage bankers operate in a highly competitive and fragmented market. In 1997 the largest originator of loans represented 6.5% of the market and the largest servicer represented 5.0%, while the top 30 originators and servicers represented 48% and 49% of their markets, respectively, based on data published by Inside Mortgage Finance.
TOP 10 ORIGINATORS AND SERVICERS (dollars in billions)
1997 Originations Servicing Portfolio at December 31, 1997
1 Norwest Mortgage, IA $55.3 1 Norwest Mortgage, IA $205.8 2 Countrywide Home Loans, CA 43.1 2 Countrywide Home Loans, CA 171.4 3 Chase Manhattan Mortgage 3 Chase Manhattan Mortgage Holdings, FL 40.1 Holdings, FL 169.3 4 Washington Mutual, WA 23.4 4 NationsBanc & Affiliates, TX 122.3 5 HomeSide Lending, FL 21.8 5 Fleet Mortgage Group, SC 121.0 6 Dime/North American Mortgage, CA 16.1 6 HomeSide Lending, FL 99.2 7 BankAmerica, CA 16.0 7 GE Capital Mortgage Svcs., NC 99.0 8 Fleet Mortgage Group, SC 15.6 8 Washington Mutual, WA 97.7 9 ABN AMRO Mtg., IL (Standard Federal) 15.2 9 BankAmerica, CA 89.7 10 NationsBanc & Affiliates, TX 15.1 10 Mellon Mortgage, TX 66.6 - ----------------- Source: Inside Mortgage Finance.
HomeSide competes with other mortgage bankers, financial institutions, and other providers of financial services. The underwriting guidelines and servicing requirements set by the participants in the secondary markets are standardized. As a result, mortgage banking products (i.e., mortgage loans and the servicing of those loans) have become difficult to differentiate. Therefore, mortgage bankers compete primarily on the basis of price or service, making effective cost management essential.
Mortgage bankers generally seek to develop cost efficiencies in one of two ways: economies of scale or specialization. Large full-service national or regional mortgage bankers have sought economies of scale through an emphasis on wholesale originations, the introduction of automated processing systems and expansion through acquisition. Smaller companies frequently identify and pursue a particular expertise or customer base in an attempt to create a market niche.
The industry has experienced rapid consolidation which has been accelerated by the introduction of significant technology improvements and the economies of scale present in mortgage servicing. The automation of many functions in mortgage banking, especially those related to servicing, has reduced costs significantly for industry participants. Many mortgage bankers that were not low cost, high volume producers or did not operate in a low cost specialized field experienced earnings declines in the nineties, causing many to exit the business or to be acquired. Surviving cost effective firms purchased servicing portfolios or other companies to expand their servicing economies of scale, while others acquired market niche operations. As evidence of this consolidation, the top 25 mortgage loan servicers have increased their aggregate market share from 16.6% in 1990 to 30.9% in 1997.
Employees
As of February 10, 1998 and February 28, 1997, respectively, HomeSide had approximately 1,891 and 1,689 total employees, substantially all of whom were full-time employees. HomeSide has no unionized employees and considers its relationship with its employees generally to be satisfactory.
ITEM 2.
ITEM 2. PROPERTIES
HomeSide's corporate, administrative, and servicing headquarters are located in Jacksonville, Florida, in facilities, which comprise approximately 145,000 square feet of owned space and approximately 202,000 square feet of leased space. The servicing center lease expires on August 31, 1999 unless HomeSide exercises its options to renew, which could extend the lease for an additional six years. HomeSide also leases approximately 53,000 square feet of warehouse space in Jacksonville, Florida for storing certain loan files, loan servicing documents and other corporate records. In addition HomeSide owns an additional 190,000 square feet of space in San Antonio, Texas. HomeSide believes that its present facilities are adequate for its operations.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
HomeSide is a defendant in a number of legal proceedings arising in the normal course of business. HomeSide, in management's estimation, has recorded adequate reserves in the financial statements for pending litigation. Management, after reviewing all actions and proceedings pending against or involving HomeSide, considers that the aggregate liability or loss, if any, resulting from the final outcome of these proceedings will not have a material effect on the financial position of HomeSide.
In recent years, the mortgage banking industry has been subject to class action lawsuits which allege violations of federal and state laws and regulations, including the propriety of collecting and paying various fees and charges. Class action lawsuits may be filed in the future against the mortgage banking industry.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended February 10, 1998, except that in December 1997, the stockholders adopted an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which a newly formed wholly-owned subsidiary of National Australia Bank Limited ("NAB") was merged with and into the Company. Pursuant to the Merger Agreement, the Company became an indirect, wholly-owned subsidiary of NAB.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption, "Market for the Registrant's Common Equity and Related Stockholder Matters" which appears on page 53 of the Company's 1998 Annual Report to Stockholders is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth under the caption, "Selected Consolidated Financial Data" which appears on page 9 of the Company's 1998 Annual Report to Stockholders is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth under the caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations" which appears on pages 10 through 21 of the Company's 1998 Annual Report to Stockholders is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the reports therein of Arthur Andersen LLP and Coopers and Lybrand LLP appearing on pages 22 through 52 of the Company's 1998 Annual Report to Stockholders are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective April 1, 1998, HomeSide, Inc. dismissed its prior certifying accountants, Arthur Andersen, L.L.P. and retained as its new certifying accountants, KPMG Peat Marwick, L.L.P. Arthur Andersen's report on HomeSide's financial statements during the two most recent fiscal years and all subsequent interim periods preceding the date hereof contained no adverse opinion or a disclaimer of opinions, and was not qualified as to uncertainty, audit scope or accounting principles. The decision to change accountants was approved by HomeSide's Board of Directors.
During the last two fiscal years and the subsequent interim period to the date hereof, there were no disagreements between HomeSide and Arthur Andersen on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen would have caused it to make a reference to the subject matter of the disagreements in connection with its reports.
None of the "reportable events" described in Item 304(a)(1) of Regulation S-K occurred with respect to HomeSide within the last two fiscal years and the subsequent interim period to the date hereof.
Effective April 1, 1998, HomeSide engaged KPMG Peat Marwick, L.L.P. as its principal accountants. During the last two fiscal years and the subsequent interim period to the date hereof, HomeSide did not consult KPMG Peat Marwick regarding any of the matters or events set forth in Item 304(a)(2) of Regulation S-K. PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Joe K. Pickett has served as Chairman of the Board and Chief Executive Officer of HomeSide Lending since April 1990 and as Chairman of the Board, Chief Executive Officer and a Director of HomeSide since March 14, 1996. From October 1994 through October 1995, Mr. Pickett served concurrently as President of the Mortgage Bankers Association of America. Mr. Pickett also serves as a Director of Fannie Mae and of Baptist Medical Center, Jacksonville, Florida.
Hugh R. Harris has served as President and Chief Operating Officer of HomeSide Lending since January 1993 and as President, Chief Operating Officer and a Director of HomeSide since March 14, 1996. From January 1988 to January 1993, Mr. Harris served as Vice Chairman of HLI in charge of production and secondary marketing. Mr. Harris currently serves as a Director of Republic Mortgage Insurance Company (RMIC).
Kevin D. Race has served as Executive Vice President and Chief Financial Officer of HomeSide Lending and Vice President, Chief Financial Officer and Treasurer of HomeSide since October 1996. From 1993 to 1996, Mr. Race served as Executive Vice President, Chief Financial Officer and Treasurer of Fleet Mortgage Group. In 1996, Mr. Race was named president of Fleet Mortgage Group. In 1989, Mr. Race served in the mortgage capital markets and non-conforming products areas of Fleet Mortgage Group. From 1985 to 1989, Mr. Race served as Vice President and National Product Manager for Mortgage Backed Securities for Citicorp. From 1982 to 1985, Mr. Race served in the secondary marketing area of North American Mortgage Company.
Robert J. Jacobs has served as Executive Vice President and Secretary of HomeSide Lending since February 2, 1996. Mr. Jacobs has served as a Director of HLI since March 14, 1996. Mr. Jacobs has also served as Secretary of HomeSide since March 14, 1996 and as Vice president of HomeSide since April 10, 1996. From 1987 to 1996, Mr. Jacobs served as a Senior Vice President and Chief Legal Officer of Chase Manhattan Mortgage Corporation, and served as General Counsel for Citicorp Savings of Florida from 1984 to 1986. Mr. Jacobs currently serves as President and Legislative Chairman of the Mortgage Bankers Association of Florida.
Betty L. Francis has served as Chief Credit Officer and as Executive Vice President of HomeSide Lending since October 1996 and as Vice President of HomeSide since April 10, 1996. Ms. Francis served from March 1994 to October 1996 as Chief Financial Officer of HLI. Ms. Francis served from April 1993 to March 1994 as the Senior Finance Officer of the Personal Banking Group, and from April 1990 to April 1993 as the Comptroller of Bank of Boston and BKBC. Ms. Francis is a Trustee of Commonwealth Energy Services, a gas and electric utility in Massachusetts.
Mark F. Johnson has served as Executive Vice President of Production of HomeSide Lending since April 1, 1992. From 1988 to 1992, Mr. Johnson served as Senior Vice President and Director of Wholesale Lending for HLI. Mr. Johnson also has served as Vice President of HomeSide since April 10, 1996.
William Glasgow, Jr. has served as Executive Vice President of HomeSide Lending since July 1991. From October 1989 to July 1991, Mr. Glasgow served as Senior Vice President with Citicorp Mortgage Inc. in St. Louis, Missouri. Mr.Glasgow has also served as Vice President of HomeSide since April 10, 1996.
Daniel T. Scheuble has served as Executive Vice President for Technology, Loan Processing and Consumer Direct Lending of HomeSide Lending since 1993. From 1990 to 1992, Mr. Scheuble served as a Senior Technology and Operational Manager at Bank of Boston. Mr. Scheuble has also served as Vice President of HomeSide since April 10, 1996.
Thomas H. Fish has served as Executive Vice President of HomeSide Lending since 1988. Mr. Fish has served as Assistant Secretary of HLI since March 14, 1996. Mr. Fish served as Secretary and General Counsel of HLI from 1988 to March 14, 1996.
W. Blake Wilson has served as Executive Vice President and Director of Capital Markets of HomeSide Lending since September 1997. He previously served as Senior vice President and Director of Capital Markets of HomeSide Lending from June 1996. Before joining HLI, Mr. Wilson served in Capital Markets for Prudential Home Mortgage ("PHM") from 1992 through June 1996. Prior to joining PHM, he worked in KPMG Peat Marwick's National Mortgage and Structured Finance Group in Washington, D.C.
Charles D. Gilmer has served as Senior Vice President and Treasurer of HomeSide Lending since October 1993. Mr. Gilmer previously served as the Director of Liability Management for Citicorp from November 1989 to October 1993.
Ann R. Mackey has served as Senior Vice President and Finance Director of HomeSide Lending since July 1993. From September 1992 to July 1993, Ms. Mackey served as a manager in International Risk Management for Bank of Boston. Ms. Mackey previously served as Senior Audit Manager at KPMG Peat Marwick from 1985 to 1992.
Debra F. Watkins has served as Senior Vice President, Cash Management and Marketing Operations of HomeSide Lending since October 1993. From July 1987 to October 1993, Ms. Watkins served in various management positions in Secondary Marketing and Production Operations at HomeSide Lending. Ms. Watkins currently serves as Chairperson of the GNMA Liaison Committee of Mortgage Association of America.
COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 (a) of the Securities Exchange Act of 1934 (the "Act") requires the Company's Directors and executive officers and persons who own more than 10% of the Company's Common Stock to file with the Securities and Exchange Commission and the New York Stock Exchange reports concerning their ownership of the Company's Common Stock and changes in such ownership. Copies of such reports are required to be furnished to the Company. To the Company's knowledge, based solely on a review of copies of such reports furnished to the Company during or with respect to the Company's most recent fiscal year, all Section 16 (a) filing requirements applicable to persons who were, during the most recent fiscal year, officers or directors of the Company or greater than 10% beneficial owners of its Common Stock were complied with.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth all compensation awarded to, earned by or paid to the Company's Chief Executive Officer and the Company's five most highly compensated executive officers other than the Chief Executive Officer whose total annual salary and bonus exceeded $100,000 for all services rendered in all capacities to the Company and its subsidiaries for the periods from March 1, 1997 to February 10, 1998, and from March 16, 1996 to February 28, 1997.
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(a) Reflects a 17 for 1 stock split of the Company's Common Stock effected immediately prior to the Company's January 1997 initial public offering. (b) Includes amounts received for (1) matching contributions under the Company's savings plan of $6,000 with respect to each of Messrs. Pickett, Harris, Johnson, Glasgow; and (2) the dollar value of life insurance premiums paid by the Company with respect to: Mr. Pickett $10,135; Mr. Harris $1,842; Mr. Race $74; Mr. Johnson $714; Mr. Glasgow $522. (c) The salary of Mr. Race is per annum. Mr. Race has been employed by the Company since October 1996. (d) Includes a bonus of $375,000 received by Mr. Race as an inducement to join the Company and $38,071 in relocation expenses.
Option Grants for the Period from March 1, 1997 to February 10, 1998
The following table provides information on option grants with respect to common Stock of the Company for the period from March 1, 1997 to February 10, 1998 to the named executive officers. Pursuant to applicable regulations of the Securities and Exchange commission (the "Commission"), the following table also sets forth the hypothetical value which might have been realized with respect to such options based on assumed rates of stock appreciation of 5% and 10% compounded annually from date of grant to the end of the option terms:
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(a) These values are based on assumed rates of appreciation only. Actual gains, if any, on shares acquired on option exercises are dependent on the future performance of the Company's Common Stock. (b) Non-qualified, timed-based options granted pursuant to the Company's 1996 Stock Option Plan. Options vest annually in arrears in five equal installments of 20% per year. (c) Non-qualified, performance-based options granted pursuant to the Parent's 1996 Time Accelerated Restricted Stock Option Plan. These options vest no later than nine years from the date of grant unless accelerated based on the achievement of certain performance criteria.
Aggregated Option Exercises and Option Values for the Period from March 1, 1997 to February 10, 1998
The following table provides information on option exercises during the period from March 1, 1997 to February 10, 1998 with respect to the Common Stock of the Company and on the values of the named executive officers' unexercised options at February 10, 1998:
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(a) Value of unexercised in-the-money stock options represents the difference between the exercise prices of the stock options and the closing price of the Parent's Common Stock on The New York Stock Exchange on February 10, 1998
Employment Contracts and Termination of Employment Arrangements
Certain of the Company's executive officers including each of the named executive officers are party to employment agreements and/or non-competition agreements with the Company. The Company is therefore contractually obligated to continue to pay such salaries during the executive officer's term of employment with the Company.
Pursuant to severance agreements with the Company, certain executive officers, including each of the named executive officers, were entitled to severance benefits if he were terminated, or constructively terminated through diminution in job responsibilities or compensation following an acquisition (a "Trigger Event"). If such named executive officer offers to remain in the employ of the Company for one year following any Trigger Event, and is either terminated during the first year or has his job responsibilities or compensation diminished, he is entitled to a severance benefit. The severance benefit will be a lump sum payment in cash equal in the case of each of Messrs. Pickett and Harris to the sum of (i) twice his annual salary in effect at the time of termination, (ii) twice his annual bonus received for the preceding year and (iii) a pro rata portion of the bonus he would have received for the year in which termination occurs (paid at the time the amount of such bonus would have been determined). The severance benefit for the other named executive officers will be equal to the sum of (i) such officer's annual salary in effect at the time of termination, (ii) his annual bonus received for the year in which termination occurs (paid at the time the amount of such bonus would have been determined). The named executive officers will also receive continued coverage under the Company's medical benefit plans for one year following such termination, or two years following termination in the case of Messrs. Pickett and Harris. Each of the Severance Agreements is for a term of one (1) year which is automatically renewed on April 1 of each year for additional one-year periods unless either the Company or the executive has given notice not later than December 31st of the previous year to the other not to extend the term of the Agreement. If a Trigger Event has occurred during the term of the Severance Agreement, however, the Agreement continues for one (1) year following the closing of the Trigger Event.
Since the 1998 fiscal year end and the NAB merger, all severance agreements have been canceled.
Historical Executive Compensation
The following table sets forth all compensation awarded to, earned by or paid to the Company's Chief Executive Officer and the Company's four most highly compensated Executive Officers other than the Chief executive officer whose total annual salary and bonus exceeded $100,000 for all services rendered in all capacities to BancBoston Mortgage Corporation and its subsidiaries for the fiscal year ended December 31, 1995. None of the Company's named executive officers received any compensation from Barnett Mortgage Company during 1995.
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(a) The salary and bonus amounts presented were earned in 1995. The payment of certain such amounts occurred in 1996. The amounts reflected in the table do not include the following bonuses paid to the named executive officers in 1996 in connection with the closing of the acquisition of BancBoston Mortgage Corporation: Mr. Pickett, $50,000; Mr. Harris, $225,000; Mr. Gilmer, $175,000; Mr. Johnson, $200,000; and Mr. Glasgow, $200,000. (b) Involves common stock of BKBC. As of December 31, 1995, the named executive officers held the following number of restricted shares of BKBC common stock having the corresponding year-end market values:
As of December 31, 1995
Total Number of Aggregate Name Restricted Shares Held Market Value ---------------------- ------------ Joe K. Pickett........... 5,600 $ 259,900
Hugh R. Harris........... 4,135 191,244
Charles D. Gilmer........ -- --
Mark F. Johnson.......... 1,784 82,510
William Glasgow, Jr...... 1,700 78,625
In connection with the BancBoston Mortgage Corporation acquisition, vesting on all of the restricted stock owned by its employees, including the restricted stock listed above, was accelerated and all prior forfeiture and transferability restrictions thereon were removed.
(c) Represents the dollar value of vested shares of performance restricted stock calculated by multiplying the closing price of BKBC common stock on each vesting date by the number of shares that vested on that date.
(d) Includes matching employer contributions and credits under the BankBoston thrift-incentive plan and the BankBoston deferred compensation plan for the named executive officers.
Retirement Benefits
The following table shows the years of service and the estimated annual retirement benefits that are payable at age 65 from BKBC to each of the named executive officers in the form of a single lifetime annuity with an assumed future annual interest rate of 6.3% through 1996 and 5.5% thereafter on each individual's cash balance account:
Prior Years of Service Estimated Annual Name as of 12/31/95 Retirement Benefit - ---------------------- ----------------------- ------------------
Joe K. Pickett........ 15 $ 73,883
Hugh R. Harris........ 12 50,676
Charles D. Gilmer..... 2 2,386
Mark F. Johnson....... 13 48,616
William Glasgow, Jr.. 4 6,836
The estimates shown above reflect BankBoston's cash balance formula as of December 31, 1995 (under which credits are made annually to an individual's account at a rate based on the individual's age and years of service), plus any accrued benefits under the prior plan formula. These benefits are provided under a combination of BankBoston's tax-qualified retirement plan and certain supplemental plans.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the paragraphs that follow set for the information with respect to the beneficial ownership of shares of the Company's voting securities as of February 10, 1998 by (i) all shareholders of the Company who own more than 5% of any class of such voting securities; (ii) each director who is a stockholder; (iii) certain executive officers; and (iv) all directors and executive officers as a group, as determined in accordance with Section 13 (d) of the Securities Exchange Act of 1934 and the rules thereunder.
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* Less than 1% (a) Includes 48,573 shares currently exercisable under the Parent's stock option plan. (b) Includes 19,431 shares currently exercisable under the Parent's stock option plan. (c) Does not include 8,570,856 shares owned by THL, as to which Mr. Hagerty disclaims beneficial ownership. (d) Does not include 8,556,389 shares owned by THL, as to which Mr. Harkins disclaims beneficial ownership. (e) Does not include the shares held by THL, MDP, Bank of Boston and Siesta, with which certain directors are affiliated; includes 202,073 shares currently exercisable under the Parent's stock option plan.
The Company was formed on December 11, 1995, to acquire HomeSide (formerly BancBoston Mortgage Corporation) the mortgage banking subsidiary of BankBoston Corporation. That acquisition was completed on March 15, 1996. On May 31, 1996 the Company acquired HomeSide Holdings, Inc. (formerly Barnett Mortgage Company), the mortgage banking subsidiary of Barnett Banks, Inc. ("Barnett").
In addition to those shares of capital stock set forth in the preceding table, 97,138 shares of Class C Common Stock (non-voting) of the Company are beneficially owned by Robert Morrissey, constituting 100% of the outstanding Class C Common Stock. Within 180 days of the initial public offering of Common Stock of the Company in January 1997, a holder of Class C Common Stock at a price based upon the average bid prices of the Common Stock for the preceding 20 days. In addition, upon consummation of a merger or sale of substantially all of the assets of the Company, a holder of Class C Common Stock may require the Company to purchase any portion of its shares of Class C Common Stock at an appraised fair market value price.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the period from March 1, 1997 to February 10, 1998, the members of the Compensation Committee were David V. Harkins, Thomas J. Hollister and Douglas K. Freeman. Mr. Shea, who was an officer of BankBoston Corporation, resigned from the Board of Directors of the Company in October 1997, and was succeeded by Mr. Hollister, an Executive Vice President of BankBoston Corporation. Each of the members of the Compensation Committee is an employee of a Principal Shareholder of the Company.
Amended and Restated Shareholder Agreement
Each of the Principal Shareholders and certain other stockholders named therein entered into an Amended and Restated Shareholder Agreement with the Company dated May 31, 996 in connection with the acquisition of Barnett Mortgage Company (the "Shareholder Agreement"). The Shareholder Agreement terminated upon the consummation of the January 1997 public offering of Common Stock of the Company, except for provisions pursuant to which the Company has agreed not to enter into transactions with certain affiliated parties except on terms which the Company could have received in comparable arms-length transactions.
Amended and Restated Registration Rights Agreement
Subject to certain limitations, pursuant to the Amended and Restated Registration Rights Agreement among the Company and the Principal Shareholders dated May 31, 1996, upon the request of (i) holders of shares of Common Stock then held by THL, (ii) BankBoston, (iii) MDP, or (iv) Siesta (provided that no request may be made for registration of securities with an expected aggregate offering price to the public of less than $20,000,000), the Company will use its best efforts to effect the registration of the Common Stock of the Company requested by such stockholder to be registered and the Common Stock of all other holders who have requested registration in connection therewith; provided that the Company is not required to effect more than two registrations pursuant to any request made by any of the foregoing parties. Under certain circumstances, if the Company proposes to register shares of its Common Stock, it will, upon the written request of any stockholder, register such requesting stockholder's Common Stock, subject to pro rata reduction in the event all securities requested to be included in the registrations statement cannot, in the opinion of the managing underwriter, be so included.
Exclusive Marketing Agreements
HomeSide has entered into a Marketing Agreement dated March 15, 1996 (the "BKBC Marketing Agreement") with BankBoston Corporation ("BKBC") pursuant to which HomeSide and BKBC may market services to HomeSide customers who are also BKBC customers ("BKBC Customers") and other customers of HomeSide. Under this agreement: (a) HomeSide has the exclusive right, subject to certain limitations, to market to all customers any mortgage loan refinancing, (b) HomeSide has the non-exclusive right to market first mortgage loans (other than refinancing) to BKBC Customers and the exclusive right market such loans to other HomeSide customers, (c) HomeSide has the exclusive right to market "other" mortgage loans to customers who are not BKBC Customers, (d) HomeSide has the non-exclusive right, subject to certain limitations, to offer certain "Eligible Products" (mortgage credit insurance, relocation services, title insurance, title search, appraisal services, private mortgage insurance, escrow services, hazard insurance services and certain other products) to BKBC Customers and the exclusive right to offer Eligible Products to other customers, and (e), BKBC has the exclusive right to offer certain banking services to BKBC Customers and the non-exclusive right to offer such services to other customers.
Under the BKBC Marketing Agreement, BKBC may not engage in a formal program to solicit HomeSide's customers for refinancing.
The terms of the BKBC Marketing Agreement is the later of: (a) eight years, or (b) the third anniversary of the termination of the Operating Agreement (which has a term of five years). See "--Other BKBC Agreements -- Operating Agreement" below.
HomeSide has also entered into a marketing Agreement dated May 31, 1996 (the "Barnett Marketing Agreement") with Barnett which is substantially similar to the BKBC Marketing Agreement, except that it governs rights with respect to "Barnett Customers" as defined therein rather than with respect to BKBC Customers.
HomeSide does not pay any fee or moneys (other than certain reimbursement obligations) to BKBC or Barnett for its marketing and other rights under the BKBC Marketing Agreement or Barnett Marketing Agreement.
Transitional Services Agreements
Bank Boston and its affiliate banks (the "BKB Banks") and HomeSide entered into a series of Transitional Services Agreement dated March 15, 1996, pursuant to which the BKB Banks agreed to make available to HomeSide, at the BKB Banks' cost, certain corporate services, including travel and relocation, general ledger support, audit, payroll, retirement plans, computer services, disbursement accounting, purchasing, telecommunications/workstation support and human resources. HomeSide also agreed to make available to the BKB Banks, at HomeSide's cost, certain administrative services, including mortgage loan origination support, mortgage loan quality control services, affordable housing loan support and pledged loan support services. For the period from March 1, 1997 to February 10, 1998, HomeSide paid to BKB Banks approximately $5.2 million under such Transitional Services Agreements. For the period from March 16, 1996 to February 28, 1997, HomeSide paid to BKB Banks approximately $2.5 million under such Transitional Services Agreements.
Barnett and HomeSide entered into a Transitional Services Agreement dated May 31, 1996, pursuant to which Barnett agreed to make available to HomeSide office space and certain corporate services, including finance services, accounting services, purchasing services, benefits and compensation administration, human resources and staffing services and technology services. HomeSide pays Barnett a monthly fee based on rates established under a fee schedule for the different services provided to HomeSide. For the period from March 1, 1997 to February 10, 1998, HomeSide paid to Barnett approximately $0.5 million under such Transitional Services Agreements. For the period from March 16, 1996 to February 28, 1997, HomeSide paid to Barnett approximately $0.9 million under such Transitional Services Agreements.
The terms of the services provided under the Transitional Services Agreements vary. As a general matter, the services were to be provided to the receiving party until the receiving party no longer requires the services, but in no event later than December 31, 1996. The term was extended to June 30, 1997 with respect to some services.
Other BKBC Agreements
Operating Agreement
The BKB Banks and HomeSide have entered into an Operating Agreement, dated March 15, 1996 (the "BKBC Operating Agreement"), which sets forth the parties' roles with respect to new loan originations and servicing rights. With certain exceptions, the BKB Banks are required to sell all mortgage loan production to HomeSide during the term of the BKBC Operating Agreement. In particular, among other things, the BKBC Operating Agreement: (a) describes the mortgage loan products to be purchased by HomeSide from BKB Banks, (b) ensures that the BKB Banks receive the most favorable pricing and service released premiums offered by HomeSide to correspondent lenders, (c) describes HomeSide's customer service levels, (d) sets forth warehouse and pipeline management rights and obligations, (e) describes the technology support which the parties provide to one another, (f) describes the mortgage loan production and support functions to be provided by the parties, (g) describes the reports and information provided periodically by HomeSide to the BKB Banks, including, but not limited to, risk management, internal performance and management reports, (h) sets forth the penalties to be paid by the BKB Banks for failing to satisfy the buy price expiration dates, (i) describes BKB Banks' mortgage loan repurchase obligations, and (j) restricts HomeSide's ability to sell servicing rights relating to BKB Banks' portfolio mortgage loans.
The term of the BKBC Operating Agreement is five years. The termination of the BKBC Operating Agreement will not affect HomeSide's right to service mortgage loans serviced prior to the termination date.
Correspondent Loan Purchase and Sale Agreement
HomeSide and the BKB Banks have also entered into a Correspondent Loan Purchase and Sale Agreement, dated March 15, 1996 (the "BKB Correspondent Loan Purchase Agreement"), which describes the mortgage loans eligible for sale to HomeSide by BKB, and related pricing and delivery requirements for such loans. The BKB Banks receive the most favorable pricing offered by HomeSide to correspondent lenders. For the periods from March 1, 1997 to February 10, 1998 and March 16, 1996 to February 28, 1997, HomeSide paid approximately $5.3 million and $4.7 million, respectively to the BKB Banks under the BKB Correspondent Loan Purchase and Sale Agreement. Under certain conditions, the BKB Banks must indemnify HomeSide or repurchase mortgage loans from HomeSide. The agreement provides certain underwriting, appraisal, mortgage insurance and escrow requirements.
The term of the BKB Correspondent Loan Purchase Agreement is five years but will automatically terminate upon the termination of the Operating Agreement.
PMSR Flow Agreement
HomeSide and the BKB Banks have entered into a PMSR Flow Agreement dated March 15, 1996, which requires the BKB Banks, subject to certain exceptions, to sell to HomeSide the servicing rights to the BKB Banks' portfolio mortgage loans. The purchase price for the servicing rights is based upon a percentage (which varies depending on the type of loan) of the principal balance of the loan, as may be adjusted based on an independent third party's revaluation. For the periods from March 1, 1997 to February 10, 1998 and March 16, 1996 to February 28, 1997, HomeSide paid approximately $1.6 million and $1.3 million, respectively, to the BKB Banks under this PMSR Flow Agreement. The agreement also requires the BKB Banks to provide certain notices to government agencies, flood service providers, insurance carriers and borrowers upon the transfer of servicing rights to HomeSide. The agreement describes the BKB Banks' obligation to prepare and record assignments of mortgage and pay tax, service-related fees and flood service fees. Under certain conditions, the BKB Banks must reimburse the servicing rights purchase price to HomeSide.
The term of the PMSR Flow Agreement is five years but will automatically terminate upon the termination of the BKBC Operating Agreement.
Mortgage Loan Servicing Agreement
HomeSide and the BKB Banks have entered into a Mortgage Loan Servicing Agreement dated March 15, 1996 (the "BKBC Servicing Agreement"), which requires HomeSide, subject to certain exceptions, to service the BKB Banks' portfolio mortgage loans. HomeSide is also required to use reasonable efforts to collect mortgage loan payments, to remit principal and interest to the BKB Banks each month and to perform certain default loan administration and foreclosure activities. HomeSide provides additional services for the BKB Banks' private banking clients.
The servicing fees paid by the BKB Banks to HomeSide are market-based fees consistent with the fees charged by HomeSide to other mortgagees. For the periods from March 1, 1997 to February 10, 1998 and March 16, 1996 to February 2, 1997, the BKB Banks paid approximately $3.8million and $5.3 million, respectively, to HomeSide under the BKBC Servicing Agreement.
The term of the BKBC Servicing Agreement is five years. The BKB Banks will not be obligated to deliver portfolio mortgage loan servicing rights to HomeSide upon the termination of the BKBC Operating Agreement. However, the termination of the BKBC Operating Agreement will not affect HomeSide's right to continue servicing the BKB Banks' portfolio loans that are being serviced by HomeSide as of such termination date.
Other Barnett Agreements
Operating Agreement
Barnett and HomeSide have entered into an Operating Agreement, dated May 31, 1996 (the "Barnett Operating Agreement"), which sets forth the parties' roles with respect to new loan originations and servicing rights. With certain exceptions, Barnett and its affiliate banks (the "Barnett Banks") are required to sell all mortgage loan production to HomeSide during the term of the Barnett Operating Agreement. In particular, among other things, the Barnett Operating Agreement: (a) describes the mortgage loan products to be purchased by HomeSide from Barnett Banks, (b) ensures that the Barnett Banks receive the most favorable pricing and servicing released premiums offered by HomeSide to mortgage correspondents, (c) describes HomeSide's customer service levels, (d) sets forth warehousing and pipeline management rights and obligations, (e) describes the technology support which the parties provide to one another, (f) describes the mortgage loan production and support functions to be provided by the parties, (g) describes the reports and information provided periodically by HomeSide to the Barnett Banks, including, but not limited to, risk management, internal performance and management reports, (h) sets forth penalties to be paid by the Barnett Banks for failing to satisfy the buy price expiration dates, (i) describes Barnett Banks' mortgage loan repurchase obligations, and (j) restricts HomeSide's ability to sell servicing rights relating to the Barnett Banks' portfolio mortgage loans.
Correspondent Loan Purchase Agreement
HomeSide and Barnett Banks have entered into a Correspondent Loan Purchase Agreement, dated May 16, 1996 (the "Barnett Correspondent Loan Purchase Agreement"), which describes the mortgage loans which are eligible for sale to HomeSide by the Barnett Banks and related pricing and delivery requirements for such loans. The Barnett Banks receive the most favorable pricing offered by HomeSide to other correspondents. For the periods from March 1, 1997 to February 10, 1998 and March 16, 1996 to February 28, 1997, HomeSide paid approximately $45.4 million and $27.6 million, respectively to Barnett under the Barnett Correspondent Agreement. Under certain conditions, the Barnett Banks must repurchase mortgage loans for HomeSide. The Barnett Correspondent Loan Purchase Agreement provides certain underwriting, appraisal, mortgage insurance and escrow requirements.
PMSR Flow Agreement
HomeSide and the Barnett Banks have entered into a PMSR Flow Agreement dated May 31, 1996 ("PMSR Flow Agreement"), which requires the Barnett Banks, subject to certain exceptions, to sell to HomeSide the servicing rights to the Barnett Banks' portfolio mortgage loans. The purchase price for the servicing rights is based upon a percentage (which varies depending on the type of loan) of the principal balance of the loan, as may be adjusted based on an independent third party's revaluation. For the periods from March 1, 1997 to February 10, 1998 and from March 16, 1996 to February 28, 1997, HomeSide paid approximately $9.5 million and $8.2 million, respectively, to Barnett under this PMSR Flow Agreement. The agreement also requires the Barnett Banks to provide certain notices to government agencies, flood service providers, insurance carriers and borrowers upon the transfer of servicing rights to HomeSide. The agreement describes the Barnett Banks' obligation to prepare and record assignments of mortgage and pay tax, service-related fees and flood service fees. Under certain conditions, the Barnett Banks must reimburse the servicing rights purchase price to HomeSide.
As a result of NationsBank Corporation's acquisition of Barnett Banks, Inc., the Company agreed to release Barnett from its five year agreement to sell certain of its mortgage loans to HomeSide. In consideration, the Company received the right to purchase $5.0 billion in mortgage servicing rights, an increase in the weighted average servicing fee for Barnett portfolio loans currently serviced, and will receive $3.0 million cash in June 1998.
Mortgage Loan Servicing Agreement
HomeSide and the Barnett Banks have entered into a Mortgage Loan Servicing Agreement dated as of May 31, 1996 (the "Barnett Servicing Agreement") which requires HomeSide, subject to certain exceptions, to service the Barnett Banks' portfolio mortgage loans. HomeSide is also required to use reasonable efforts to collect mortgage loan payments, to remit principal and interest to the Barnett Banks each month and to perform general ledger reconciliations and other related tasks. HomeSide is also required to perform certain default loan administration and foreclosure activities. HomeSide provides additional services for the Barnett Banks' private banking clients. For the periods from March 1, 1997 to February 10, 1998 and March 16, 1996 to February 28, 1997, Barnett paid $29.1 million and $23.6 million in servicing fees, respectively.
Each of the foregoing agreements described under "Certain Relationships and Related Transactions" was entered into in connection with either the acquisition of BancBoston Mortgage Corporation or Barnett Mortgage Company. No additional consideration was paid or received by HomeSide in connection with the execution and delivery thereof.
Management Agreements
HomeSide agreed to pay the Thomas H. Lee Company, MDP, BankBoston and Barnett pursuant to management agreements entered into in connection with the BancBoston Mortgage Corporation and the Barnett Mortgage Company acquisitions, an annual management fee of $250,000, $83,334, $333,333 and $333,333, respectively. Such management agreements had a term of five years automatically extended for successive one year terms, except either party could terminate the agreement by delivering notice thereof 90 days prior to the end of any such term. The management agreements terminated upon consummation of the January 1997 offering of Common Stock of the Parent.
CERTAIN TRANSACTIONS
As of February 28, 1997, certain members of management owed $1.9 million related to loans granted to purchase shares of the Company's common stock. During the period from March 1, 1997 to February 10, 1998, all related loans were repaid.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements: See Part II, Item 7 hereof.
2. Financial Statement Schedule and Auditors' Report
All schedules omitted are inapplicable or the information required is shown in the Consolidated Financial Statements or notes thereto.
3. The following exhibits are submitted herewith:
Unless otherwise indicated, all Exhibits are incorporated by reference to the Company's Registration Statement on Form S-1, No. 333-17685.
Number Description
3.1 Certificate of Incorporation of HomeSide, Inc.
3.2 By-Laws of HomeSide, Inc.
3.3 Form of Restated Certificate of Incorporation of HomeSide, Inc.
3.4 Form of Amended and Restated By-Laws of HomeSide, Inc.
3.5 Certificate of Amendment of Certificate of Incorporation of HomeSide, Inc.
4.1 Form of Common Stock Certificate
10.1 Stock Purchase Agreement dated December 11, 1995 between HomeAmerica Capital, Inc. (currently known as HomeSide, Inc.) and The First National Bank of Boston (the "BBMC Purchase Agreement")
10.2 Amendment No. 1, dated as of March 15, 1996, to the BBMC Purchase Agreement
10.3 Marketing Agreement dated as of March 15, 1996 between HomeSide, Inc. and The First National Bank of Boston
10.4 Repurchase of Mortgage Loan Servicing Rights Letter Agreement between The First National Bank of Boston (currently known as BankBoston, N.A.) and BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.)
10.5 Operating Agreement effective as of March 15, 1996 between The First National Bank of Boston (currently known as BankBoston, N.A.) and BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.)
10.6 Brokered Loan Purchase and Sale Agreement dated as of March 15, 1996 between BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.) and each of The First National Bank of Boston (currently known as BankBoston N.A.), Bank of Boston Connecticut, Rhode Island Hospital Trust National Bank and Bank of Boston Florida, N.A.
10.7 Master Take-Out Commitment dated as of March 15, 1996 between BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.) and each of The First National Bank of Boston (currently known as BankBoston, N.A.), Bank of Boston Connecticut, Rhode Island Hospital Trust National Bank and Bank of Boston Florida, N.A.
10.8 Neighborhood Assistance Corporation of America Mortgage Loan Take-Out Commitment dated as of March 15, 1996 between BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.) and The First National Bank of Boston (currently known as BankBoston, N.A.)
10.9(DELTA) PMSR Flow Agreement dated as of March 15, 1996 between BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.) and each of The First national Bank of Boston (currently known as BankBoston, N.A.), Bank of Boston Connecticut, Rhode Island Hospital Trust National Bank and Bank of Boston Florida, N.A.
10.10(DELTA) Mortgage Loan Servicing Agreement dated as of March 15, 1996 between BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.) and each of the First National Bank of Boston, Bank of Boston Connecticut, Rhode Island Hospital Trust National Bank and Bank of Boston Florida, N.A.
10.11 Stock Purchase Agreement dated as of March 4, 1996 between Grant America, Inc. (currently known as HomeSide, Inc.) and Barnett Banks, Inc. (the "BMC Purchase Agreement")
10.12 Amendment No. 1, dated as of May 31, 1996, to the BMC Purchase Agreement
10.13 Tax Indemnity Letter Agreement dated as of March 4, 1996 between Barnett Mortgage Company (currently known as HomeSide Holdings, Inc.) and Barnett Banks, Inc.
10.14 Amended and Restated Shareholder Agreement dated as of May 31, 1996 among HomeSide Lending, Inc. and the shareholders thereof
10.15 Amended and Restated Registration Rights Agreement dated as of May 31, 1996 between HomeSide, Inc. and certain shareholders thereof
10.16 Marketing Agreement dated as of May 31, 1996 between HomeSide, Inc. and Barnett Banks, Inc.
10.17 Transitional Services Agreement dated as of may 31, 1996 between Barnett Banks, Inc., Barnett Mortgage Company (currently known as HomeSide Holdings, Inc.) and HomeSide, Inc.
10.18 Operating Agreement dated as of May 31, 1996 between HomeSide Lending, Inc. and Barnett Banks, Inc.
10.19(DELTA) Mortgage Loan Servicing Agreement dated as of April, 1996 between HomeSide Lending, Inc. and Barnett Banks, Inc.
10.20(DELTA) PMSR Flow Agreement dated as of May 31, 1996 between HomeSide Lending, Inc. and Barnett Banks, Inc.
10.21 Correspondent Agreement dated May 16, 1996 between HomeSide Lending, Inc. and Barnett Banks, Inc.
10.22 Delegated Underwriting Agreement dated as of May 15, 1996 between HomeSide Lending, Inc. and HomeSide Holdings, Inc.
10.23* Amended and Restated Credit Agreement dated as of January 31, 1997 among HomeSide Lending, Inc., Honolulu Mortgage Company, Inc., the Lenders parties thereto, and The Chase Manhattan Bank as Administrative Agent (the "Credit Agreement")
10.24* Amended and Restated Holdings Pledge Agreement dated as of January 31, 1997 between HomeSide, Inc. and The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.25* Amended and Restated HomeSide Pledge Agreement dated as of January 31, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.26* Amended and Restated BMC Pledge Agreement dated as of January 31, 1997 between HomeSide Holdings, Inc. and The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.27 Registration Rights Agreement dated as of May 14, 1996 among HomeSide, Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Smith Barney Inc. and Friedman, Billings, Ramsey & Co., Inc.
10.28* Amended and Restated Holdings Guaranty dated as of January 31, 1997 by HomeSide, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.29* Amended and Restated HomeSide Guaranty dated as of January 31, 1997 by HomeSide Lending, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.30* Amended and Restated Subsidiaries Guaranty dated as of January 31, 1997 by each of SWD Properties, Inc., Stockton Plaza, Inc., HomeSide Mortgage Securities, Inc. and Honolulu Mortgage Company, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.31* Amended and Restated BMC Guaranty dated as of January 31, 1997 by HomeSide Holdings, Inc. in favor of The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.32* Amended and Restated Security and Collateral Agency Agreement dated as of January 31, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.33* Amended and Restated Security and Collateral Agency Agreement dated as of January 31, 1997 between Honolulu Mortgage Company, Inc. and The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.34* Amended and Restated Security and Collateral Agency Agreement dated as of January 31, 1997 between HomeSide Holdings, Inc. and The Chase Manhattan Bank, as Administrative Agent for the Lenders parties to the Credit Agreement
10.35* Intercreditor Agreement dated as of May 31, 1996 between HomeSide, Inc., HomeSide Holdings, The Bank of New York, as Trustee, and The Chase Manhattan Bank, as Administrative Agent under the Credit Agreement
10.36 HomeSide, Inc. Time Accelerated Restricted Stock Option Plan
10.37 HomeSide, Inc. Non-Qualified Stock Option Plan
10.38 Class B Non-Voting Common Stock Issuance Agreement dated as of March 14, 1996 between HomeSide, Inc. and Smith Barney Inc.
10.39 Transitional Services Agreement dated as of March 15, 1996 between The First National Bank of Boston (currently known as BankBoston, N.A.) and BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.)
10.40 Transitional Services Agreement dated as of March 15, 1996 between The First National Bank of Boston (currently known as BankBoston, N.A.) and BancBoston Mortgage corporation (currently known as HomeSide Lending, Inc.)
10.41 Management Agreement dated as of March 15, 1996 between BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.) and The First National Bank of Boston (currently known as BankBoston, N.A.)
10.42 Management Agreement dated as of March 15, 1996 between BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.) and Thomas H. Lee Company
10.43 Management Agreement dated as of March 15, 1996 between BancBoston Mortgage Corporation (currently known as HomeSide Lending, Inc.) and Madison Dearborn Partners, Inc.
10.44 Management Stockholder Agreement dated as of May 15, 1996 between HomeSide, Inc., The First National Bank of Boston (currently known BankBoston, N.A.), Thomas H. Lee Equity Fund III, L.P. and certain affiliates thereof, Madison Dearborn Capital Partners, L.P. and certain employees of HomeSide, Inc. and its subsidiaries
10.45 Management Agreement dated as of May 31, 1996 between HomeSide Lending, Inc. and Barnett Banks, Inc.
10.46 Form of HomeSide Severance Agreement
10.47* Loan and Security Agreement dated January 15, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank
10.48* First Amendment dated February 28, 1997 to Loan and Security Agreement dated January 15, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank
10.49* Second Amendment dated March 31, 1997 to Loan and Security Agreement dated January 15, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank.
10.50* Loan and Security Agreement dated March 14, 1997 between HomeSide Lending, Inc. and Merrill Lynch Mortgage Capital Inc.
10.51* First Amendment dated March 31, 1997 to Loan and Security Agreement dated March 14, 1997 between HomeSide Lending, Inc. and Merrill Lynch Mortgage Capital Inc.
10.52* Third Amendment dated April 11, 1997 to Loan and Security Agreement dated January 15, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank.
10.53* Second Amendment dated April 14, 1997 to Loan and Security Agreement dated March 14, 1997 between HomeSide Lending, Inc. and Merrill Lynch Mortgage Capital Inc.
10.54* Fourth Amendment dated April 29, 1997 to Loan and Security Agreement dated January 15, 1997 between HomeSide Lending, Inc. and The Chase Manhattan Bank.
10.55* Third Amendment dated April 29, 1997 to Loan and Security Agreement dated March 14, 1997 between HomeSide Lending, Inc. and Merrill Lynch Mortgage Capital Inc.
10.56* Amendment dated as of September 30, 1997 to the Credit Agreement dated as of January 31, 1997
10.57* Second Amendment dated as of December 31, 1997 to the Credit Agreement dated as of January 31, 1997.
10.58* Employment Agreement and Confidentiality and Non-Competition Agreement, each dated as of October 25, 1997, each between HomeSide Lending, Inc. and Joe K. Pickett.
10.59* Employment Agreement and Confidentiality and Non-Competition Agreement, each dated as of October 25, 1997, each between HomeSide Lending, Inc. and Hugh R. Harris.
10.60* Employment Agreement and Confidentiality and Non-Competition Agreement, each dated as of October 25, 1997, each between HomeSide Lending, Inc. and Kevin D. Race.
10.61* Employment Agreement and Confidentiality and Non-Competition Agreement, each dated as of October 25, 1997, each between HomeSide Lending, Inc. and William Glasgow.
10.62* Employment Agreement and Confidentiality and Non-Competition Agreement, each dated October 25, 1997, each between HomeSide Lending, Inc., and Mark F. Johnson.
13 1998 annual Report for HomeSide, Inc.
21.1* List of subsidiaries of HomeSide, Inc.
23.6(a) Consent of Hutchins, Wheeler & Dittmar, A Professional Corporation (included in Exhibit 5.1)
24.1 Powers of Attorney
26.0 Excerpts from 1997 and 1998 Annual Report to Stockholders
26.1 Item 15