Servicing

FirstFed Financial Corp., Los Angeles, has reported a mortgage-related net loss of $69.8 million ($5.11 per share), compared with net income of $32.4 million ($1.92 per share) a year earlier. The company said the loss resulted chiefly from a $150.3 million provision for loan losses due to increased delinquencies and chargeoffs on single-family loans and declines in the value of single-family homes throughout California. A year earlier, the loan loss provision totaled only $3.8 million, FirstFed said. "Adjustable-rate mortgages that have reached their maximum allowable negative amortization and now require an increased payment were a contributing factor in the higher level of delinquent loans during the first quarter of 2008," the company said. "The bank estimates that 1,310 loans with balances totaling approximately $609.9 million could hit their maximum allowable negative amortization during the rest of 2008, and that another 1,536 loans, with balances totaling $684.9 million, could hit their maximum allowable negative amortization during 2009."

Fitch Ratings has announced a review to evaluate potential complementary scales for structured finance deals that might improve transparency, provide added information, and address critiques of such ratings. Fitch said it now uses only one rating scale, but noted growing debate about the suitability of this approach for structured deals. In response, the rating agency has suggested three complementary scales for such deals. Loss Given Default ratings would try to quantify recoveries (on a tranche-level basis) that a structured finance creditor would likely receive in a default. Fitch said an LGD scale would address the common criticism that a structured finance tranche and a corporate bond with the same rating may have similar default characteristics, but that actual losses in a default "may differ materially." Transition/Stability ratings would try to capture the likelihood of a rating change in a given period, and Collateral ratings would try to measure the aggregate quality of a deal's underlying collateral. Fitch said it will begin to issue drafts on the proposals by early June, but welcomes "preliminary feedback."

Citigroup has priced an offering of $4.5 billion of common stock at $25.27 per share. The common stock offering comes on the heels of Citi's $6 billion offering of preferred shares. Citi said the two capital-raising moves would bring its Tier One capital ratio to 8.6% on a pro forma basis using March 31 data. Wall Street's reaction was muted, with Citi's shares falling about 3% in morning trading April 30 after the pricing was announced.

The Federal Trade Commission's multiyear investigation into the servicing practices of a Bear Stearns affiliate could lead to the filing of a complaint, but EMC Mortgage Corp. executives have agreed to resolve the matter through "consent negotiations," according to the FTC. Lydia Parnes, the FTC's director of consumer protection, told a Senate panel that FTC staff "believes EMC and its parent Bear Stearns have violated a number of federal consumer protection statutes in connection with its servicing activities." The FTC director indicated that negotiations have not started yet. "The FTC cannot comment further on this ongoing law enforcement investigation," she testified. Ms. Parnes also revealed that the FTC has launched "several nonpublic investigations of mortgage originators for possible violations of fair lending laws." In addition, the consumer protection agency is investigating more than a dozen mortgage companies for deceptive advertising. The FTC can be found online at http://www.ftc.gov.

The Federal Deposit Insurance Corp. has developed a $50 billion "pay-down" loan program to facilitate the restructuring of "underwater" mortgages and prevent 1 million foreclosures. If approved by Congress, the Treasury Department would make loans to borrowers to pay down the principal of the first mortgage by up to 20%. Mortgage investors participating in the program would pay Treasury's financing costs and interest on the Home Ownership Preservation loan for the first five years. After five years, the borrower would start paying principal and interest. To ensure repayment of the HOP loans, the first lienholders would subordinate their interests to the Treasury. This would ensure that the government is "paid off the top," FDIC Chairman Sheila Bair said, when there is a sale or refinance. She called it a "workable" plan that would make "unaffordable loans affordable." It would also avoid dealing with second lienholders. The loans could stay in the securitized pools and the servicer wouldn't have to get the second lienholder's approval for the restructuring, Ms. Bair told reporters.

Moody's Investors Service has downgraded 63 certificates from 11 transactions issued by Nomura Asset Acceptance Corp. Alternative Loan Trust and backed by second-lien loans. Moody's also placed on review for possible downgrade three of the downgraded certificates as well as two others. Moody's said the negative rating actions were based on credit enhancement levels, including excess spread and subordination, that were deemed too low in view of projected losses. They take into account "the continued and worsening performance" of transactions backed by closed-end second-lien collateral, Moody's said. The rating agency can be found online at http://www.moodys.com.

More than two hundred additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on April 28. Fitch also affirmed the ratings on classes with outstanding balances of approximately $9 billion. Among the securities affected by the latest downgrades were: 74 classes from 16 issues by CSFB Home Equity Asset Trust; 35 classes from 11 issues by Countrywide (CWABS); 26 classes from nine issues by Option One Mortgage Loan Trust; 26 classes from 10 issues by Long Beach; 22 classes from six issues by Securitized Asset Backed Receivables; 20 classes from four issues by Finance America Mortgage Loan Trust; and 10 classes from four issues by EquiFirst Mortgage Loan Trust. Fitch can be found online at http://www.fitchratings.com.

Palm Harbor Homes Inc., a Dallas-based manufacturer and marketer of factory-built homes, has announced the sale of approximately $51.3 million of chattel and mortgage loans by its mortgage lending subsidiary, CountryPlace Mortgage Ltd. The loans represented the majority of CountryPlace's $69.4 million warehoused portfolio of chattel and mortgage loans. Approximately $41.5 million of the proceeds were used to repay in full and terminate the company's warehouse borrowing facility, Palm Harbor said. "Multiple parties expressed interest in our warehoused portfolio, and we believe the positive market response, in sharp contrast to the tightening mortgage credit markets, reflects the strength of our business model and our strict underwriting standards, the historically strong performance of our two securitized financings, and the high quality of our assets," said Larry H. Keener, chairman and chief executive officer of Palm Harbor. The company can be found online at http://www.palmharbor.com.

The Federal Home Loan Bank of Chicago expects to report a $78 million loss for the first quarter and losses in "subsequent quarters," the bank says, as it takes steps to improve earnings and reduce hedging costs on its $34.5 billion mortgage portfolio. "Although the first-quarter loss is significant, the Bank has retained earnings of $581 million at the end of the first quarter," acting FHLBank president Matthew Feldman said in a letter to members. The Chicago FHLBank warned its members several months ago to expect a loss when it files it first quarter financial report on May 7. In providing the early disclosure, Mr. Feldman also noted that the bank booked an impairment loss of $33 million on $4.5 billion in private-label subprime mortgage-backed securities that had been degraded. Management estimates the "economic loss" on the subprime MBS will be "approximately $1 million." Separately, the Office of Finance released preliminary financial results for the 12 FHLBanks, which shows consolidated earnings of $697 million in the first quarter, up 12.2% from the level of the same quarter in 2007.

GMAC Financial Services, New York, lost $589 million in the first quarter, but says the performance of its U.S. mortgage unit actually improved. The company's mortgage unit, ResCap, lost $859 million in the first quarter, down from a loss of $910 million in the fourth quarter. ResCap's prime, conforming loan production in the United States totaled $15.4 billion in the first quarter, up from $9.6 billion in the first quarter of last year. The company said weakness in its overseas business offset domestic improvement. ResCap has reduced its mortgage origination activity in the United Kingdom and suspended all new mortgage originations in continental Europe in response to "illiquidity in the global capital markets and weakening consumer credit in certain markets." The company can be found online at http://www.gmacfs.com.