Servicing

Federally insured banks and thrifts have reported earnings of $5.8 billion for the fourth quarter, an 84% drop from those of a year earlier, as turmoil in the credit and mortgage markets produced large trading loses, record-high loss provisions, and the largest increase in noncurrent one- to four-family loans in 17 years, according to the Federal Deposit Insurance Corp. Noncurrent loans (90 days or more past due) rose by $26.9 billion, or 32.5%, in the fourth quarter, and residential and commercial real estate loans accounted for more than 80% of the increase. Noncurrent one- to four-family loans grew by $11.1 billion, or 31.7%, in the fourth quarter, and chargeoffs were up $1.3 billion, or 144%. The percentage of noncurrent one- to four-family loans rose from 1.57% in the third quarter to 2.06% in the fourth quarter -- the highest level in 17 years. Meanwhile, noncurrent construction and development loans increased by $8.4 billion, or 73.2%, in the fourth quarter. The FDIC is keeping a close eye on housing, CRE, credit card, and small business loan portfolios. "All of these are showing signs of stress, as weakness in the housing market continues," FDIC Chairman Sheila Bair said.

RealtyTrac, an online foreclosure marketplace based in Irvine, Calif., has reported that new foreclosure filings rose 8% in January and were 57% higher than the level recorded a year earlier. The company's U.S. Foreclosure Market Report indicates that 233,001 new foreclosure properties were added to the rolls in January. "January's foreclosure numbers demonstrate that foreclosure activity is continuing on its upward trend, substantially increasing from a year ago in many states," said James J. Saccacio, RealtyTrac's chief executive officer. "However, the 8% monthly increase in January is not as precipitous as the 19% spike the previous month." The company said Nevada, California, and Florida recorded the highest foreclosure rates in January. RealtyTrac can be found online at http://www.realtytrac.com.

Four classes of mezzanine floating-rate notes from Triaxx Funding High Grade I Ltd., which invests in residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class B-1, from BB to CCC; class B-2, from B to CCC; and class C and D deferrable interest notes, from CCC to C. Classes B-1 and B-2 remain on Rating Watch Negative, and classes C and D were removed from Rating Watch Negative. The downgrades were due to "concerns about potential margin calls by the repo counterparty if there is a further drop in market prices, the short-term nature of the repo financing, and delevering of the program that has led to further realization of losses," the rating agency said. Triaxx invests in triple-A rated RMBS assets using proceeds raised by issuing notes and equity and using repo funding, Fitch said.

More than 200 additional classes of first-lien subprime mortgage pass-through certificates were downgraded by Fitch Ratings on Feb. 22 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of over $1.6 billion. The securities affected by the latest downgrades were 99 classes from seven Asset Backed Securities Corp. deals; 69 classes from five IndyMac ABS Inc. deals; 55 classes from four Asset Backed Funding Corp. deals; and seven classes from one BASIC deal. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found on the Web at http://www.fitchratings.com.

Franklin Credit Management Corp., Jersey City, N.J., has reported the receipt of a noncompliance notice from the NASDAQ Stock Market regarding the listing of Franklin's common stock. The notice said the stock has failed to maintain a minimum bid price of $1 or more per share for the preceding 30 business days. Compliance would be restored if the stock closes at $1 or more per share for at least 10 consecutive trading days before Aug. 18, Franklin said. If the stock has not returned to compliance by that date, NASDAQ will provide a written notification that Franklin's stock will be delisted. Franklin can be found online at http://www.franklincredit.com.

Morris/Hardwick/Schneider, an Atlanta-based real estate closing law firm, has announced the formation of two new mortgage service divisions: National Default Services and National REO. The default services unit was established through a merger with Wittstadt & Wittstadt, a Baltimore-based law firm. M/H/S said the merger enables the firm to "offer the full spectrum of end-to-end lender services -- from loss mitigation to foreclosure to REO to resale." In addition, it broadens the area served by M/H/S and its title company, LandCastle Title, by adding Maryland, Virginia, West Virginia, Delaware, and Washington, D.C., to its existing area, which includes Alabama, Florida, Mississippi, North Carolina, Ohio, South Carolina, and Tennessee. M/H/S can be found on the Web at http://www.closingsource.net.

To expedite loan modifications, Congress may need to "step in" and shield mortgage servicers from investor lawsuits, according to FDIC Chairman Sheila Bair. "My hope is investors wake up to what's going on and push hard for loan modifications, not fight them," the Federal Deposit Insurance Corp. chairman told an audience in California's Silicon Valley. But she noted that servicers are reluctant to write down the principal amount of distressed mortgage because it could expose them to litigation. "But in this environment of declining home prices, writing down the values of loans to an amount the borrowers can pay in a sustainable manner may result in smaller losses to investors than foreclosure," Ms. Bair said.

Common shares of Fannie Mae and Freddie Mac declined Friday after analysts at Merrill Lynch downgraded the companies from Neutral to Sell. Shares of Fannie Mae declined by 27 cents, closing at $28.72. Freddie Mac's shares fell $1.14, closing at $26.61. In a report, Merrill Lynch said the companies' share prices did not fully reflect the "severity or duration of financial headwinds facing the companies." Merrill Lynch suggested that both firms could see their share prices fall below lows that were hit in 2007 as the housing and credit crisis became apparent. Overall, the Dow Jones industrial average rose 96 points, or 0.79%, on the day, fueled by an afternoon rally.

Class B-3 of Salomon Brothers Mortgage Securities VII Inc. mortgage pass-through certificates, series 2000-UP1, has been placed on Rating Watch Negative by Fitch Ratings. Fitch also affirmed the ratings on 63 classes from 15 issues of Salomon Brothers pass-throughs. The collateral in the transaction consists of first-lien prime mortgage loans.

Nine classes from five issues of Structured Asset Securitization Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings. Fitch also placed one SASCO class on Rating Watch Negative and affirmed the ratings on 35 classes from the five deals. The downgrades were attributed to deterioration in the relationship between credit enhancements and expected losses.