Servicing

The National Association of Home Builders is supporting the housing bill despite it limitations, and the trade group is urging others to compromise so that the landmark legislation can be passed and sent to the president. "We are urging everyone to stop demagoguing and start compromising for the sake of economy," NAHB chief executive Jerry Howard said. The NAHB wanted a broader homebuyer tax credit and a net operating loss carry-back provision so builders could deduct losses in 2008 and 2009 from their profits in prior years and receive a tax rebate. But the housing bill now under consideration in the Senate limits the tax credit to first-time homebuyers, and the NOL provision has been dropped. Mr. Howard said the organization is willing to support the limited tax credit and expressed hope that "others on Capitol Hill that have a couple of outstanding issues will realize the value and necessity of being flexible, too." Otherwise the most important housing bill since 1992 "could go down the tubes," he said.

Moody's Investors Service has downgraded Fremont Investment & Loan's servicer quality rating from SQ4-minus to SQ5 as a primary servicer of subprime mortgage loans. Moody's also removed the SQ rating from review for possible downgrade. "The action is prompted by the sale and transfer of Fremont's remaining mortgage servicing rights on their $12.2 billion serviced portfolio to Litton Loan Servicing LP," the rating agency said. "With the completion of this sale, Fremont no longer services subprime residential real estate loans for others."

In a follow-up to regulatory approvals for CapitalSource Inc., Chevy Chase, Md., to buy certain assets and liabilities of Fremont Investment & Loan, Fremont General Corp., Brea, Calif., has filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Fremont General stressed that FIL has not filed for bankruptcy, but court approval will be needed to complete the sale to a de novo California-chartered industrial bank being formed by CapitalSource. Fremont General previously sold its $12.2 billion mortgage servicing rights portfolio to Litton Loan Services, a division of Goldman Sachs. Meanwhile, CapitalSource will make a public offering of 30 million shares of common stock. "This is a 'play offense' capital raise," said John K. Delaney, CapitalSource chairman and chief executive. "With the recent regulatory approval of CapitalSource Bank (in organization), we are well positioned to seize opportunities in the current favorable market conditions."

Two classes of subprime pass-through certificates from Soundview Home Equity Loan Trust series 2001-1 have been downgraded by Fitch Ratings. Class M-1 has been downgraded from AA-minus to CCC/DR1, and class M-2 has been downgraded from CC/DR2 to C/DR5. Fitch also affirmed the triple-A rating of class A.

Citing declining home prices and deteriorating credit trends, Cincinnati-based Fifth Third Bancorp has announced several moves aimed at strengthening its capital position. Fifth Third said it plans to issue $1 billion of convertible preferred shares to shore up its Tier 1 capital, reduce its quarterly dividend from $0.44 per share to $0.15 per share, and sell certain noncore businesses. The company said it has revised its target Tier 1 capital ratio to 8%-9%. Meanwhile, Fitch Ratings downgraded the long- and short-term Issuer Default Ratings, among others, of Fifth Third and its principal bank subsidiaries. The long-term IDRs were downgraded from AA-minus to A-plus, the short-term from F1-plus to F1. The downgrades were attributed to "the company's deteriorating trends in asset quality, expectations for elevated levels of problem assets in the near term, and a decline in profitability.... The majority of credit weakening is concentrated in Michigan and Florida, and centered in the home equity, homebuilder/developer, and residential mortgage portfolios."

Solera National Bank, Lakewood, Colo., has announced a joint marketing agreement and strategic partnership with Countrywide Home Loans under which Countrywide will establish an office in each of Solera's branch locations. "Since we opened our doors late last year, we have had a significant number of ongoing requests from our customers for residential mortgage products and services," said Paul Ferguson, the bank's chief executive officer. "Our relationship with Countrywide Home Loans and their location in our bank lobby will allow Solera National Bank to deepen our relationship with our customers and prospective customers." Countrywide, which is based in Calabasas, Calif., is being acquired by Bank of America. Solera can be found on the Web at http://www.solerabank.com, and countrywide can be found at http://www.countrywide.com.

Despite the record number of foreclosures, housing price declines have been small and will remain so, according to a new paper released by the American Enterprise Institute. Cushioned by such other "fundamental factors" as employment growth and reductions in the housing supply, prices on average will slide by only 4.5% under the study's worst-case scenario, said co-author Charles Calomiris, a professor at Columbia University and a visiting scholar at the conservative think tank. Only 11 states will see prices drop by more than 6% by the end of 2009, he predicted. "Foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of housing price collapse," Mr. Calomiris said. The paper bases its findings on house-price data compiled by the Office of Federal Housing Enterprise Oversight, maintaining that the more popular S&P/Case-Shiller index is prejudiced toward markets more susceptible to price swings. But Mark Zandi of Moody's Economy.com said it is the OFHEO numbers that are defective because, among other things, they don't include foreclosure sales. Mr. Zandi said 25% of all sales in the first quarter were distress sales, many at 50 cents on the dollar. And with 8.5 million homeowners now owing more than what their properties are worth, the economist warned that the foreclosure problem will get much worse before it gets better.

Morgan Stanley's net income for the fiscal quarter ended May 31 fell from $2.582 billion to $1.026 billion on a year-to-year basis, in part due to $436 million in net losses from mortgage proprietary trading. The company said it also took about $519 million in net losses "primarily related to loans as well as closed and pipeline commitments, due to losses on hedges which were partly offset by mark-to-market gains," said John Mack, chairman and chief executive officer. "Difficult market conditions and lower levels of client activity impacted our results, particularly in fixed income and asset management."

The Goldman Sachs Group Inc., New York, saw net earnings of $2.09 billion in the second fiscal quarter (ended May 30) when it took a loss of about $775 million from credit products that was partially offset by higher net revenue in mortgages. "We continue to benefit from our strong client franchise, a broad and diverse set of businesses, and the deep commitment and experience of our people," said Lloyd C. Blankfein, chairman and chief executive officer. "We are realistic about the market challenges we face, but times of market dislocation also produce opportunities, and we will continue to take advantage of the most attractive of these as they arise."

Several financial services groups, and even the U.S. Chamber of Commerce, say they support a major housing bill pending in the Senate, but they want a section of the bill dealing with the licensing and registration of mortgage originators dropped from the legislative package. Title VI has "serious faults" and imposes suitability requirements on employees of lending institutions that will create uncertainty in the origination and underwriting process, according to the six industry groups. The American Financial Services Association, the Consumer Bankers Association, the Consumer Mortgage Coalition, the House Policy Counsel of the Financial Services Roundtable, the Mortgage Bankers Association, and the CoC signed the June 17 letter. "We strongly support" the GSE regulatory reforms and the FHA modernization provisions in the housing bill, as well as the FHA foreclosure rescue program, says the letter addressed to Sens. Christopher J. Dodd, D-Conn., and Richard C. Shelby, R-Ala. "Therefore, we urge that Title VI be separated from the rest of the bill and be considered separately once the licensing and registration provisions are perfected," the groups say.