Servicing

Mortgage Industry Advisory Corp. is auctioning off a $536 million portfolio of performing alt-A whole loans on behalf of what it calls an "east coast money center bank." The New York-based advisory firm declined to name the seller. "It may come as a surprise to some people but the portfolio is totally performing," said Dan Thomas, managing director of assets sales for MIAC. The servicing rights are included along with the whole loans. According to the offering circular, the portfolio has an average loan-to-value ratio of almost 78%. The average FICO score is 707 and the coupon is just over 7%. The average loan size is $376,075. Over the past year the alt-A market has suffered higher delinquencies but not in the range of subprime lates, which are north of 30%, according to figures compiled by the Quarterly Data Report. Alt-A loans are "nonprime" in nature but have higher FICO scores than A- to D loans. In years past some lenders considered 'stated-income' loans to be in the category of alt-A. The bid deadline is Friday, October 24.

Astoria Financial Corp. of New York took a $57.9 million charge in the third quarter on its investment in Freddie Mac preferred stock. When the government placed Fannie Mae and Freddie Mac into a conservatorship on September 7 their preferred shares became nearly worthless with many depositories taking huge writedowns on their stakes. Astoria, a multifamily and residential lender, is just the latest of many banks and thrifts to report such losses. In the third quarter it reported $127 million in nonperforming single-family loans and $34 million in multifamily/commercial. Both nonperforming figures are up compared to the year ago quarter. In 3Q 2008 Astoria, a thrift, lost $16.5 million compared to a profit of $35.3 million a year ago.

Citigroup, which has suffered billions in losses from it's A- to D securitization business, still has $27.9 billion in subprime CDO exposure on its books, though almost $10 billion of that is hedged. According to the company's third quarter earnings statement, the bulk of its exposure is in what it calls "older vintage, high grade" asset-backed security CDO (collateralized debt obligations). A CDO is a security made up of other securities, in Citigroup's case, subprime MBS or ABS. But Citigroup - which recently slashed its wholesale mortgage network by 90% - also has other residential-related problems. In the third quarter it took a $1.2 billion writedown on alt-A mortgages (net of hedges) and suffered a $192 million loss on a hedge tied to its mortgage servicing portfolio. CitiMortgage, at June 30, ranked fourth among all residential servicers with an $816 billion portfolio, according to the Quarterly Data Report. In the third quarter Citigroup lost $2.8 billion overall. It entered the subprime business earlier in the decade when it bought Associates First Capital Corp. of Texas.

Wells Fargo charged-off $307 million more of second lien mortgage debt in the third quarter than in the second, and the company says home equity losses will remain "elevated" until housing markets stabilize. The company also saw first mortgage charge-offs increase by $43 million in the third quarter. All told, Wells charged-off $780 million in first and second mortgages in the third quarter. The company also saw a 21% decline in home loan origination volume from the prior year period. However, Wells said that lower loan origination income was partially offset by higher servicing fee income on its $1.56 trillion loan administration portfolio. Overall, the company's net income fell 24%, with $646 million of writedowns related to investments in Fannie Mae, Freddie Mac and Lehman Brothers also trimming Wells Fargo's third quarter results.

JPMorgan Chase & Co. booked $663 million in charge-offs on its home equity loan portfolio in the third quarter, a stunning increase of 342% from the year ago quarter. Until earlier this year, JPM's mortgage division heavily marketed its HELOC product, particularly through loan brokers and correspondents. JPM also was one of many lenders that played in the "80-10-10" market where HELOCs were originated along with firsts so customers could avoid paying private mortgage insurance. With home prices suffering, those loans have since gone out of favor. (HELOC delinquencies are on the rise throughout the lending and servicing industry.) JPM's mortgage unit also suffered $273 million in subprime charge-offs compared to $40 million a year ago. The bank holds $94.8 billion in HELOCs, up 3% from the year ago. It funded $2.6 billion in HELOCs during the quarter, a 77% decline from 3Q 2007. Overall, JPM, as a company, earned $527 million compared to $3.4 billion a year ago. It is one of nine banks that the Treasury has slated to partially "nationalize" by purchasing preferred shares in the firm.

The Federal Deposit Insurance Corp. is continuing to keep a "cone of silence" on the bidding for IndyMac's assets but, according to one investment banker familiar with the process, a second round of bids is now under way. The investment banker, requesting his name not be used, said, "there's a decent amount of interest." It is still unclear whether the thrift - now a ward of the FDIC - will be sold mostly in one piece or as an ongoing franchise or broken up. Investors have been offered the option of making one bid for the entire company or just making an offer on certain portfolios or the servicing platform. The thrift services about $190 billion in mostly home loans, ranking ninth nationwide, according to the Quarterly Data Report. The FDIC took control of IndyMac in July.

Irwin Financial Corporation, Columbus, OH, has entered into "standby" purchase agreements with five investors to purchase up to $31 million of common shares after shareholders have been given the first opportunity to invest in the offering. The deal is part of a previously announced $50 million rights offering to shareholders. "We continue to make progress executing our strategic restructuring plan to reduce our exposure to the national mortgage lending industry and return to our traditional focus on delivering banking services to small businesses and local communities where we have branches," said Will Miller, chairman and CEO of Irwin Financial. He said the offering will help Irwin continue to maintain required capital levels while completing the initiative.

The Treasury Department Tuesday morning said it would use $250 billion of taxpayer money earmarked for the new "Troubled Asset Relief Program" to invest in dozens of the nation's depositories, including some of the largest: Bank of America (which now owns Countrywide Home Loans), Citigroup, J.P.Morgan Chase, Merrill Lynch, and Wells Fargo. All are key players in the residential mortgage market - both as servicers and lenders. BoA, Wells, and Chase rank one, two, and three, respectively in terms of home mortgage servicing rights, controlling 52.13% of the market, according to National Mortgage News and the Quarterly Data Report. Specifically, Treasury is buying preferred stock in these banks but is also requiring that all continue to "strengthen their efforts to help struggling homeowners" who might go into foreclosure. Treasury hopes by investing in such pillars of the banking community it will send a message to investors worldwide that it stands behind these lenders. The agency hopes its actions will loosen up credit conditions in the commercial paper market. "Our goal is to see a wide array of healthy institutions sell preferred shares to the Treasury and raise additional capital so they can make more loans to businesses and consumers across the nation," Treasury secretary Henry Paulson said. Participating banks and thrifts will have to agree to limit executive compensation and boost their loan modification efforts. In conjunction with Treasury's plan, FDIC is starting a temporary program to guarantee newly issued promissory notes, commercial paper and other unsecured bank senior debt with maturities not to exceed three years.

Spanish bank Banco Santander SA is in advanced talks to buy Sovereign Bancorp of Philadelphia, a top 40 ranked residential servicer. Santander already owns 25% of Sovereign, which had $18.9 billion in residential servicing rights on its books at mid-year, according to the Quarterly Data Report. The Pennsylvania-based lender is also a larger player in the multifamily and HELOC markets. On Monday Santander released a statement confirming that it was talking to the thrift, which could turn out to be America's largest depending on what the new owners of Washington Mutual, Countrywide, and Wachovia FSB do with their thrift charters. Santander's bid is valued at $3.81 a share. On Monday Sovereign's shares were trading at $3.74, giving the company a market capitalization of $2.45 billion. Its 52-week high is $17.35.

The Federal Deposit Insurance Corp. has simplified its rules on insuring mortgage servicer accounts so that mortgage-backed securities investors and homeowners are better protected in the event of a bank or thrift failure. Effective October 10, mortgage servicing accounts of principal and interest(P&I) are insured for up to $250,000 per mortgagor/homeowner at all depositories, according to an interim rule adopted on Friday by the FDIC's board of directors. Previously, insurance coverage was determined by the lenders/investors interest in the P&I accounts, which could lead to unexpected losses for MBS investors. FDIC staff noted that mortgage securitizations have become too complex, difficult and time consuming when it comes to deciphering investors' interests. The agency also noted that servicing accounts are an important source of liquidity for institutions and need better protection to prevent withdrawals. In response to the board's action, Fannie Mae said it is rescinding a recently adopted policy that required certain servicers to place P&I payments in trust accounts for safekeeping.