Servicing

Lehman Brothers has replaced two of its top executives in the days prior to the formal release of its fiscal second-quarter results. Joseph Gregory has been replaced as president and chief operating officer by Herbert H. McDade III, while Erin Callan has been forced out as chief financial officer after serving in the position for only seven months. Her replacement is Ian Lowitt, currently the co-chief accounting officer. Mr. McDade was global head of Lehman's equities division. According to Lehman's statement, Ms. Callan will be rejoining the investment banking division in a senior capacity. On June 9, Lehman said it expected a loss of $2.8 million for its second fiscal quarter, which ended May 31. Between June 6 and June 12, Lehman's stock price dropped by $10.51, closing at $22.70 per share. As of 11 a.m. June 13, the day after the sackings were announced, Lehman's stock was up $2.22 on the day to $24.92.

Foreclosure filings rose 7% in May and were nearly 48% higher than the level of a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The company's U.S. Foreclosure Market Report indicates that foreclosure filings -- default notices, auction sale notices, and bank repossessions -- were reported on 261,255 properties in May. "May was the third straight month where we've seen a month-to-month increase in foreclosure activity, and the 29th straight month we've seen a year-over-year increase," said James J. Saccacio, RealtyTrac's chief executive officer. "The nationwide rate of increase for default notices and foreclosure auction notices slowed in May, with default notices up just 1% from the previous month and auction notices down 3% from the previous month." However, bank repossessions "continued to surge," he said. The company reported that Nevada, California, and Arizona recorded the highest foreclosure rates in May. RealtyTrac can be found online at http://www.realtytrac.com.

An analysis of loan servicing data by the Office of the Comptroller of the Currency has found that loss mitigation actions exceeded new foreclosure starts by a nearly two-to-one margin among subprime borrowers in March. Starting in February, the nation's nine largest OCC-regulated mortgage servicers began submitting some historical and monthly servicing metrics to the agency. Those lenders account for 23 million loans, or about 40% of all outstanding mortgages, the OCC said. The agency said overall credit quality remained "relatively satisfactory and relatively stable" over the six-month period ended in March. While the percentage of loans in the foreclosure process crept upward to 1.23% during that period, the number of new foreclosures peaked in January and fell in March, the OCC said. The OCC can be found on the Web at http://www.occ.treas.gov.

Thornburg Mortgage Inc., Santa Fe, N.M., lost $3.3 billion in the first quarter, but the company's chief executive says most of the loss related to unrealized mark-to-market valuation adjustments and writedowns of asset values. The loss, which came to $20.64 per common share, reflected weak housing market conditions and secondary-market turmoil in the first quarter, CEO and president Larry Goldstone said. As a result of margin calls from the company's creditors, Thornburg had to sell assets and seek alternative financing for assets that remained in portfolio, he noted. "Even in this difficult overall market, we were able to raise new capital to provide further liquidity to meet our borrower obligations," he said. The company had received $1.8 billion worth of margin calls since Dec. 31, but was only able to satisfy $1.2 billion of the total by early March. The company was forced to arrange alternative financing and sell assets at a loss to meet its additional margin calls and reduce its reverse repurchase agreement obligations. The new financing arrangement required Thornburg to raise an additional $1 billion of capital and was significantly dilutive to existing shareholders, but it provided a one-year reprieve from new margin calls, the company said. Thornburg can be found online at http://www.thornburgmortgage.com.

With the resurgence in government-backed mortgage lending, Ginnie Mae is on course to issue some $200 billion in securities in fiscal year 2008, and might even surpass its previous record of $216 billion, according to Michael Frenz, Ginnie's executive vice president. In the first eight months of fiscal 2008, the agency has issued $112 billion in securities, including $21.5 billion worth in May alone, the Ginnie Mae official told the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington. This compares with $7.7 billion in May 2007, and a total of $85.1 billion in securities in all of fiscal 2007. The agency can be found on the Web at http://www.ginniemae.gov.

The Federal Housing Administration has added mortgage subsidiaries and outside vendors to its list of entities that are exempt from its 90-day "anti-flipping" rule. The FHA will not insure a mortgage on any property that was owned by the seller for fewer than 90 days before transferring it to a new owner. A waiver exempts properties owned by the FHA, Fannie Mae, Freddie Mac, and state- and federally chartered financial institutions. But to satisfy the anti-flipping rule, many third-party vendors are forced to leave foreclosed properties vacant for 90 days. "This harms neighborhoods, frustrates homebuyers, and delays recovery," FHA Commissioner Brian Montgomery said at the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington. The exemption allowed for vendors will last for one year, at which time "recovery should be under way," Mr. Montgomery said. The FHA can be found online at http://www.fha.gov.

The new head of the Department of Housing and Urban Development says the short seven months he will have on the job is enough time to "make a profound, powerful difference" in what has become the "American nightmare." In his first public appearance since being sworn in, HUD Secretary Steve Preston told the Mortgage Bankers Association's Government Housing and Loan Production Conference in Washington that "where there's urgency and commitment, there is terrific opportunity." What lawmakers, the administration, and the mortgage business do now to address the rising tide of defaults and foreclosures "can set the market on a firm foundation for future growth," said the former head of the Small Business Administration, who had been on the job at HUD for only four days. Calling on Congress to modernize the Federal Housing Administration and improve oversight of the housing government-sponsored enterprises, he said the "situation demands action now." And noting that the default situation will get worse before it gets better, Secretary Preston asked the industry to "continue to be aggressive" in reaching out to troubled borrowers.

Five classes of subprime mortgage pass-through certificates from two GSAMP Trust transactions have been downgraded by Fitch Ratings. The downgrades were as follows: GSAMP Trust 2002-HE2, classes A-1 and A-2, from AAA to AA; and GSAMP Trust 2002-NC1, class M-1, from AA to A, class M-2, from A to BB, and class B-1, from BBB to C/DR6. Fitch also affirmed the ratings on seven classes from three GSAMP subprime transactions.

Twenty-eight classes from four alternative-A mortgage-backed securities deals have been downgraded by Fitch Ratings. The downgraded securities included the following: 11 classes from Credit Suisse Mortgage Corp. Trust 2007-5, group I; seven classes from CSAB Mortgage-Backed Trust 2007-1, group 2; five classes from Bear Stearns ALT-A Trust 2006-7, group II; and five classes from GMAC Mortgage Trust 2005-AF1. The rating agency attributed the downgrades to expected defaults and losses from delinquent loans and projected losses from the currently performing pools.

A TransUnion analysis of consumer loan data finds that residential home loan delinquencies have risen for five straight quarters, with 3.23% of borrowers being at least 60 days behind on their mortgage payments in the first quarter. This was up 62% from the level recorded in the first quarter of last year, TransUnion said. States with the highest 60-day delinquency rates in the TransUnion data were Nevada and Florida. On the bright side, Keith Carson, a senior consultant in TransUnion's financial services group, said the quarter-to-quarter increase was smaller than that of the fourth quarter.