Servicing

Federal Reserve Board Chairman Ben S. Bernanke says he expects that foreclosures on $1 trillion in subprime adjustable-rate mortgages will lead to at least $100 billion in losses, and it could go much higher. "So far, I see about $100 billion, but it certainly could be several multiples of that as we go forward and delinquency rates and foreclosure rates rise," the Fed chairman told the House Budget Committee. He noted that there are 5 million subprime ARMs, of which 20% are delinquent. The Fed chairman also testified that home prices are falling in many parts of the country. "The virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgage loans have further reduced the demand for housing, while foreclosures are adding to the already-elevated inventory of unsold homes," he said.

Bond insurer Ambac Financial -- whose guarantee is behind billions of dollars in asset-backed bonds collateralized by subprime loans -- saw its stock plunge 60% in trading early Thursday after Moody's Investor Service said it is reviewing the company for a possible downgrade. The news comes on the heels of Ambac's recent announcement that it has an estimated $5.5 billion pretax loss on credit derivatives for the fourth quarter. In trading, Ambac's shares were down 62% to just $5 a share. In a statement regarding the possible downgrade, Ambac called it a "surprising" move on Moody's part, adding that "Management remains confident in Ambac's insured portfolio and will communicate further on these matters."

Merrill Lynch took a $9.8 billion loss for the fourth quarter -- and a $7.8 billion net loss ($8.6 billion from continuing operations) for all of 2007 -- due primarily to an $11.5 billion U.S. mortgage-related writedown in the last three months of the year that produced results far below analysts' estimates. In addition to the writedowns on the mortgage-related assets themselves, Merrill took credit valuation adjustments of $2.6 billion related to hedges with financial guarantors on collateralized debt obligations with mortgage exposure. Analysts at Sandler O'Neill Research said that, while the writedowns "were significant and larger than our expectations, we actually expect that some investors may be disappointed [that Merrill] did not take a larger writedown, given more aggressive actions at some of its competitors and in the wake of ... significant capital raises." The results may have implications for the company's remaining wholesale mortgage business. Merrill also announced the appointment of Noel B. Donohoe as co-chief risk officer. Mr. Donohoe was previously head of firmwide risk at Goldman Sachs from 1994 to 2005. Merrill Lynch can be found online at http://www.ml.com.

Class B-5 of PHH Mortgage Corp. mortgage pass-through certificates series 2006-2 has been placed on rating Watch Negative by Fitch Ratings. Fitch also affirmed the ratings on 43 other classes from eight PHH issues of pass-through certificates.

Six tranches from MortgageIT Securities Corp. Mortgage Loan Trust series 2007-1 has been downgraded by Moody's Investors Service, and three tranches have been placed under review for possible downgrade. One downgraded tranche remains on review for possible further downgrade. The negative rating actions were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.

The Homeownership Preservation Foundation, Minneapolis, has reported a doubling in the number of homeowners calling its 888-995-HOPE hotline in the fourth quarter. The national hotline, which helps borrowers who are behind on their mortgage payments, received more than 143,000 calls in the fourth quarter, twice the total received in the third quarter and nearly 10 times that of the first quarter, the foundation said. More information on the hotline can be found on the Web at http://www.995hope.org.

FirstFed Financial Corp., Santa Monica, Calif., has announced that it expects to make a $20-23 million provision for loan losses for the fourth quarter, more than quadrupling the $4.5 million provision recorded in the third quarter, as a result of rising single-family loan delinquencies. The company said single-family loans 30-90 days delinquent rose to approximately $237 million by Dec. 31, up from $72 million as of Sept. 30. "Adjustable-rate mortgages that have reached their maximum allowable negative amortization, which now require an increased payment, are a contributing factor in the higher level of delinquent loans," the company said.

The Federal Deposit Insurance Corp. has hired First Financial Network Inc. to market and sell $40 million in residential mortgage loans from the failed Miami Valley Bank. The Lakeview, Ohio, bank had $86.6 million in assets when the FDIC closed it in October, transferred all the insured deposits to a local bank, and retained all the assets. FFN president and chief executive Bliss Morris said she expects due diligence to begin in February, and the bid date will be in early March. "We are pleased to assist FDIC with this assignment," Ms. Morris said. "We have proven our ability to transact sales of this nature on behalf of FDIC and look forward to another successful portfolio offering." Based in Oklahoma City, FFN has an online loan trading platform that provides qualified investors with immediate access to due-diligence information.

ForeclosureRadar.com, Discovery Bay, Calif., has noted a substantial month-to-month jump of 45.4% in California's notices of default. The number of NODs in December was 32,948 compared to 22,665 in November, according to the company's California Foreclosure Report. December auction sales increased by 4.1% from November, to a total of 12,783 properties with a loan value of $5.18 billion dollars. Additionally, a total of 9,001 properties have been sold at auction in just the first eight business days of January, with daily average sales 76% higher than in December. "The impact of the credit crisis that began in August is now clearly starting to show its impact," said ForeclosureRadar founder Sean O'Toole. "Many analysts fail to understand the delays inherent in the foreclosure process, and I believe we have yet to see the real impact from the ARM resets that began in earnest last October." The majority of loans going to auction continue to have been originally made in 2006 (52%), 2005 (34%), 2007 (8%) and 2004 (5.4%). At the county level, notable month-to-month increases in activity were seen in Riverside, San Bernardino, San Diego, Ventura, Orange, Los Angeles, Santa Cruz, Marin and San Francisco counties. ForeclosureRadar can be found online at www.foreclosureradar.com.

JPMorgan Chase took a $1.3 billion writedown on the value of its subprime positions in the fourth quarter, including marks against its collateralized debt obligation portfolio. JPM -- which has been relatively unscathed by the subprime crisis (up until now) -- said it increased its loan loss allowances by $395 million in the quarter because of anticipated mark downs on high loan-to-value mortgages, including home equity loans. Even though JPM wrote down the value of its subprime CDOs, its mortgage banking division had net income of $332 million, it said. Its mortgage business was helped, in part, by a $499 million upward adjustment in the value of its mortgage servicing rights. Overall, the bank/investment bank earned $124 million in the quarter, an 88% drop from the same period last year.