Servicing

Citing a worse mortgage market than expected even two months ago, Standard & Poor's Ratings Services has lowered the long-term counterparty credit ratings of Washington Mutual Inc., Seattle, and Washington Mutual Bank. WaMu's counterparty rating was downgraded from BBB-plus to BBB, and WaMu Bank's was downgraded from A-minus to BBB-plus. S&P also placed all its WaMu ratings on CreditWatch with negative implications. "We now believe that the severity of losses on all residential mortgages will be higher that we had thought and that the weak housing market will now be a longer cycle," said S&P credit analyst Victoria Wagner. S&P said it also has a more negative view of the overall economy, which could "push loan losses and loan delinquencies much higher than we previously factored into the WaMu ratings." Despite the downgrades, S&P said WaMu "has made significant strides at shoring up bank and holding-company liquidity and has substantial liquidity at the holding company to meet all of its fixed-income and dividend obligations through the next few years."

Closed-end investment fund Carlyle Capital Corp. Ltd. says it is considering "all available options" after receiving "substantial additional margin calls and additional default notices from its lenders." The margin calls stem from recent deterioration in the agency mortgage-backed securities market. "The company believes these additional margin calls and increased collateral requirements could quickly deplete its liquidity and impair its capital," Carlyle Capital said. Carlyle also said that lenders who had previously issued default notices to the company have liquidated some of the fund's MBS. The company can be found on the Web at http://www.carlylecapitalcorp.com.

JPMorgan Chase Bank NA will be exercising its rights in a default on a margin call of about $28 million at Thornburg Mortgage, triggering cross-defaults that Thornburg said could be "material," according to a Securities and Exchange Commission filing. Thornburg, a real estate investment trust based in Santa Fe, N.M., had said earlier that it was in default with one reverse-repurchase counterparty involved in the second of two sets of margin calls it faced recently. But it had said it was working to repay that counterparty, which had not yet exercised its right to liquidate collateral. The SEC filing indicated that JPM "will exercise its rights." The default has "triggered cross-defaults under all of the company's other secured loan agreements," the filing said.

MBIA, Armonk, New York, has announced plans to eliminate 48 positions in its bond insurance operation but redeploy many affected employees into different asset management jobs as it reorganizes in the wake of mortgage-related concerns. MBIA's chairman and chief executive officer, Jay Brown, said the company has tried to make the cuts "quickly and in a manner that is as painless and generous as possible, with the same treatment for every employee who will leave our organization." He said that in addition to the cuts, the reorganization includes filling 15-20 new "strategic roles" in addition to filling "another 10 open positions."

The Federal Deposit Insurance Corp. is working on a policy statement to clarify how it would deal with covered bonds in a failed bank situation so investors are comfortable holding these instruments, which provide lenders with an alternative way to finance their mortgage lending operations. "FDIC wants to bring certainty to the process and lower the cost of issuing covered bonds," agency spokesman Andrew Gray said. Several U.S. banks have issued covered bonds collateralized by mortgages in European markets that have become concerned about FDIC pay-off policies. The FDIC generally has 90 days to decide how to deal with the assets and liabilities when a bank or thrift fails. The policy statement would clarify that the FDIC intends to shorten the period significantly "so there would be the assurance that it wouldn't spread out over three months," the agency spokesman said. The FDIC wants to issue the policy statement in April for public comment so it can go into effect in late summer.

The Federal Reserve has announced plans for moves to "address heightened liquidity pressures in term funding markets," including $100 billion of term repurchase transactions for which agency mortgage-backed securities, agency debt, or Treasuries may be delivered as collateral. The Fed also plans to increase the amounts outstanding in the term auction facility to $100 billion, with auctions on March 10 and March 24 increased by $20 billion each to $50 billion each. The TAF auctions are slated to be conducted "for at least the next six months unless evolving market conditions clearly indicate that such auctions are no longer necessary," the agency said. The Fed also said it would increase the size of both the repo operations and the auctions "if conditions warrant."

Ginnie Mae has announced that pools backed by the Federal Housing Administration's temporary high-balance loans will be ready for issuance on April 1. Ginnie Mae said it will create a new multiple-issuer security under the Ginnie Mae II mortgage-backed securities program to accommodate the loans. "We believe it's important that Ginnie Mae support the stimulus package and create a vehicle that will improve market liquidity as soon as possible," said Thomas R. Weakland, Ginnie Mae's acting vice president. "This new security will enable more borrowers to qualify for safe, affordable FHA-insured loans, which is critically important as the mortgage industry continues to navigate the ongoing market upheaval." All single-family loans higher than the FHA's current loan limit of $362,790 will be eligible for inclusion in the new pools. The agency can be found on the Web at http://www.ginniemae.gov.

Citigroup disclosed plans Thursday to reduce its on-balance-sheet mortgage holdings by $45 billion over the next year, or 20% of its total portfolio. Officials in Citi's mortgage division told MortgageWire that it will not be selling loans per se, but instead will try to achieve the reduction through normal portfolio runoff. Citi also clarified that it will remain a retail, wholesale, and correspondent lender but will no longer buy mortgages in bulk packages. "We will buy only on a flow basis," said one company executive. Citi is also reorganizing and will place all its lending-related divisions under CitiMortgage in O'Fallon, Mo., a company managed by Bill Beckmann. (For full details, see the March 10 issue of National Mortgage News.)

In late 2006 Countrywide Financial Corp. chairman and chief executive Angelo Mozilo accelerated his insider stock sales just as the company had decided to spend $2.5 billion of its own money to buy back stock, according to the House Oversight Committee. At a congressional hearing on Friday, committee chairman Henry Waxman, D-Calif., questioned Mr. Mozilo about the buyback plan and his decision to exercise options and sell $150 million worth of stock just as Countrywide's share price was peaking. "Countrywide's stock has fallen almost 85% since February [2007, when it was $45 a share]," Rep. Waxman noted. "Why was the buyback plan in the best interests of the shareholders?" Mr. Mozilo defended his sales, saying there was "no relationship" between Countrywide's stock buyback plan and his exercising of options. Instead of selling his shares through a planned schedule, Mr. Mozilo said, "I could have sold them all at once." Countrywide's shares were trading at just over $5 on Friday, compared with a 52-week high of $42 and a low of $4. Bank of America is buying the company for about $7 a share. The company can be found online at http://www.countrywide.com.

Mortgage brokerage firms cut 4,100 employees in January, while employment at mortgage banking companies appeared to stabilize, according to a government jobs report. The U.S. Bureau of Labor Statistics reported that 3,900 full-time employees in the mortgage banker/broker sector lost their jobs in January. Total employment in the sector fell from 368,800 in December to 364,900 in January. Over the past 12 months, mortgage bankers have cut their payrolls by 25% and eliminated 86,700 jobs, while 23,900, or 17%, of the brokers counted by the BLS have lost their jobs or left the sector. But the recent uptick in refinancings along with rising defaults and workout cases that are straining servicing departments must have forced mortgage banking companies to stop cutting, at least for now. They added 200 workers to their payroll in January. Friday's job report also shows that the troubled homebuilding industry has lost 346,000 jobs since September 2006. Homebuilders laid off 14,400 employees in February, and residential specialty trade contracts cut another 16,300 employees. (There is a one-month lag in the BLS's reporting of jobs data on the mortgage industry.) The BLS can be found online at http://stats.bls.gov.