Servicing

New foreclosure filings rose 4% in April and were nearly 65% higher than the level recorded 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 243,353 properties in April. "The total number of U.S. properties with foreclosure activity in April was the highest monthly total we've seen since we began issuing the report in January 2005," said James J. Saccacio, RealtyTrac's chief executive officer. "Although only about 2% of households nationwide are in foreclosure, these properties contribute to already-bloated inventories of homes for sale and put downward pressure on home values." The company said California, Florida, and Ohio recorded the highest foreclosure rates in April. RealtyTrac can be found online at http://www.realtytrac.com.

The Senate has passed a flood insurance reform bill in a 92-6 vote that phases out subsidized premiums for certain commercial properties and vacation/second homes and requires properties protected by dams and levees to have flood insurance for the first time. The bill (S. 2284) also requires lenders to escrow flood insurance premiums and increases penalties on lenders that don't insure homebuyers in flood-prone areas. A House-passed bill expands the National Flood Insurance Program to offer dual coverage for flood and wind damage. The Senate overwhelmingly rejected such an expansion by a 73-19 vote. The Senate bill also forgives $17 billion in debt that the Federal Emergency Management Agency borrowed from the U.S. Treasury to pay flood claims after hurricanes Katrina and Rita in 2005.

Freddie Mac also announced plans to raise an additional $5.5 billion in new core capital, prompting the Office of Federal Housing Enterprise Oversight to say it would reduce Freddie's surplus capital requirement from 20% to 15% upon completion of the effort. Freddie Mac said the new capital would be divided about evenly between the issuance of preferred stock and common stock. Freddie chairman and chief executive Richard Syron said the additional capital will help the company provide liquidity for the mortgage market and build shareholder value. The government-sponsored enterprise can be found on the Web at http://www.freddiemac.com.

Freddie Mac narrowed its quarterly loss to $151 million ($0.66 per share) in the first quarter, despite a significant increase in credit costs. By contrast, Freddie Mac reported a $2.5 billion net loss in the fourth quarter. Freddie Mac executives said the company benefited from higher securitization volume, a higher guarantee fee rate, and higher net interest income. Freddie's first-quarter provision for credit expenses totaled $1.2 billion, and the company raised its estimate of credit costs for 2008 as a whole. But at the same time, Freddie Mac now projects that net interest income will grow 40%-50% this year, driven by higher portfolio volume and better interest rate spreads. Freddie is also expecting its guarantee fee income to increase by 15%-20% this year. In a conference call with investors, chief financial officer Buddy Piszel said Freddie Mac does not plan any new cuts to its dividend payments. Wall Street reacted favorably, with the company's stock rising about 9% in morning trading on news that the loss was narrower than the consensus estimate of analysts polled by Thomson Financial, which predicted a $0.92 per share loss.

Seven tranches from two First NLC Trust 2005 subprime transactions have been downgraded by Moody's Investors Service. The downgrades were as follows: First NLC Trust 2005-1, class M-12, from Baa2 to Ba1, and class M-13, from Baa3 to B1; and First NLC Trust 2005-2, class M-5, from A2 to Baa1, class M-6, from A3 to Baa2, class M-7, from Baa1 to Ba1, class M-8, from Baa2 to Ba3, and class M-9, from Baa3 to B2. Moody's attributed the downgrades to "an increasing proportion of severely delinquent loans." The collateral consists primarily of first-lien subprime mortgage loans.

Citing "deteriorating housing markets," Standard & Poor's Ratings Services has lowered its ratings on Indymac Bancorp and its subsidiaries. S&P lowered its counterparty credit rating on Indymac from BB-plus/B to B/C and downgraded the preferred stock of Indymac and IndyMac Bank FSB to D, pointing to the recent suspension of dividend payments on the preferred stock. The corporate credit ratings on the bank and the holding company have been placed on CreditWatch with negative implications. "This action was taken in response to our growing concerns about Indymac's exposure to deteriorating housing markets, which has driven nonperforming assets to very high levels and resulted in continued credit-related losses that have eroded capital," said S&P credit analyst Robert B. Hoban Jr. S&P said it is concerned that "continued increases in problem assets and increasingly high chargeoff levels will leave the company unable to get ahead of its asset quality problems. Because Indymac's profitability was already depressed by the cyclical decrease in mortgage finance activity and reduction in its gain-on-sale margin, we expect the company to continue to suffer quarterly losses for at least the rest of 2008." The rating agency can be found online at http://www.standardandpoors.com.

The Federal Agricultural Mortgage Corp., Washington, has reported a net loss to common stockholders of $8.3 million ($0.84 per share) for the first quarter, compared with net income available to common stockholders of $3.9 million ($0.37 per share) for the first quarter of 2007. Farmer Mac attributed the loss to market value changes on financial derivatives used to hedge interest rate risk on its assets and liabilities. The government-sponsored enterprise also reported "core earnings," a performance measure based on net income available to common stockholders less the after-tax effects of unrealized gains and losses on financial derivatives. Core earnings totaled $10.5 million ($1.06 per share) in the first quarter, versus $6.2 million ($0.58 per share) a year earlier. "To date, the credit issues that have arisen in the housing and consumer sectors of the economy have mot affected the agricultural economy in general, or Farmer Mac's guarantee portfolio in particular," said Henry D. Edelman, Farmer Mac's president and chief executive officer. "Reflecting the effectiveness of Farmer Mac's ongoing credit risk management and the strength of the U.S. agricultural economy, 90-day delinquencies in Farmer Mac's guarantee portfolio remained at notably low levels as of March 31, 2008, in terms of both dollars and percentages." The company can be found online at http://www.farmermac.com.

Beazer Homes USA, an Atlanta-based homebuilder that is under investigation by various state and federal agencies regarding mortgage origination practices, has filed restatements of earnings that reflect an increase of $27.6 million in retained earnings from 1998 through 2006. Beazer announced last year that an internal investigation had found that its mortgage unit, Beazer Mortgage Corp., violated Federal Housing Administration rules, especially regarding downpayment assistance programs. In addition to such violations, Beazer said its Audit Committee discovered accounting errors and irregularities resulting primarily from "inappropriate accumulation of reserves and/or accrued liabilities associated with land development and house costs" and inaccurate revenue recognition related to certain home sale/leaseback provisions. The company said it is still under investigation by the U.S. Attorney's Office in the Western District of North Carolina and other state and federal agencies regarding the matters that have been the subject of the Audit Committee's independent investigation. Beazer can be found online at http://www.beazer.com.

Foreclosures fell more than 5% in April, and pre-foreclosure filings declined as well, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm. Lenders repossessed 74,570 homes following foreclosure in April, while pre-foreclosures declined 7.5%, the company said. "The sky isn't falling, and the bottom of the housing market is in sight," said Alexis McGee, president of the firm. (Ms. McGee forecast in early 2007 that the worst of the foreclosure crisis was over.) On a quarter-over-quarter basis, 17 states had fewer real estate owned filings in April, the company said. "That's the good news," she said. "The bad news is that still 3.8 of every 1,000 households nationwide (288,497 REO filings) have been lost to foreclosure so far this year." The company can be found online at http://www.foreclosures.com.

Senate Banking Committee Chairman Christopher J. Dodd, D- Conn., says his committee will mark up two bills on May 15 that will address the housing crisis -- an FHA refinancing bill and a GSE regulatory reform bill. The Federal Housing Administration bill is similar to a House-passed measure that authorizes the FHA to refinance "underwater" mortgages if the investor/servicer writes down the principal amount to 85% of the current appraised value. The government-sponsored enterprise bill would strengthen regulation of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Efforts to craft a compromise with Sen. Richard C. Shelby, R-Ala., have failed so far, and Sen. Dodd introduced the two newly drafted measures on his own. The Bush administration says it hopes to get a "strong" and "balanced" GSE bill but is likely to oppose the FHA refinancing bill. President Bush has already threatened to veto the House FHA bill (H.R. 3221). FHA Commissioner Brian Montgomery said H.R. 3221 "forces taxpayers to pay for bad loans" and creates "hundreds of thousands of risky loans." The commissioner told the National Association of Realtors that there is room for compromise if Congress is willing to take a "workable" approach that is fiscally sound.