Servicing

Meanwhile, the CtW Investment Group is calling on five Citigroup directors to "describe the actions they took" to protect shareholders from excessive exposure to mortgage risk over the past two years. The five are: C. Michael Armstrong, George David, John M. Deutch, Andrew N. Liveris, and Anne M. Mulcahy. CtW said it will recommend that shareholders vote against directors who fail to provide "a compelling response" before Citi's 2008 annual meeting. "Accountability for risk management begins with the Audit Committee, and they will be the first to face an opposition shareholder vote," said Bill Patterson, executive director of the organization, which works with pension funds sponsored by unions affiliated with Change to Win to "enhance long-term shareholder value through active ownership." The group can be found online at http://www.ctwinvestmentgroup.com.

Citi also announced the raising of $12.5 billion of capital via the sale of convertible preferred securities, including a $6.9 billion investment by the Government of Singapore Investment Corp. The private offering included investments from several other sources, including the Kuwait Investment Authority and The Weill Family Foundation. Citi also announced a public offering of approximately $2 billion in convertible preferred securities; a reduction in the company's quarterly dividend to $0.32 per share; and continuing sales of noncore assets, including asset reductions of approximately $176 billion in the fourth quarter under generally accepted accounting principles.

Citigroup has reported a $9.8 billion loss for the fourth quarter after taking a $17.4 billion writedown on subprime mortgage assets and reducing its subprime exposure from $54.6 billion in the third quarter to $37.3 billion. Citigroup executives cited the writedowns and losses on U.S. mortgage and consumer loans as the primary reason for the poor performance. They also say they expect continued deterioration in mortgage and consumer loan performance this year and have valued their remaining subprime assets (including $29.3 billion in collateralized debt obligations) based on the assumption that house prices will decline 6.5% -7.0% in 2008 and 2009. The giant international banking company also announced plans to raise more capital (see item below), and it is reducing its dividend by 40% to 32 cents. In response to the earnings report, Fitch Ratings announced that its rating outlook for Citigroup will remain negative "until profitability is restored, exposure to topical areas is further reduced, and asset quality stabilizes." The company can be found online at http://www.citi.com.

Class I-B-3 of Homebanc Mortgage Trust 2007-1 has been downgraded from Baa2 to Ba1 by Moody's Investors Service. The downgrade was based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.

Eight tranches from two mortgage-backed securities deals issued by American Home in 2007 have been downgraded by Moody's Investors Service. The downgrades were as follows: American Home Mortgage Assets Trust, series 2007-3, class I-M-1, from Aa2 to Baa3 (and placed on review for possible further downgrade), class I-M-2, from A2 to Caa1, class I-M-3, from Baa3 to Ca, class II-M-3, from A2 to B3, class II-M-4, from A3 to Caa1, class II-M-5, from Baa2 to Caa2, class II-M-6, from Baa3 to Caa3; and series 2007-2, class I-M-2, from A3 to Baa2. In addition, nine tranches from three deals have been placed under review for possible 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.

Fourteen tranches from two deals issued by ChaseFlex in 2007 have been downgraded by Moody's Investors Service, and one tranche has been placed under review for possible 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. The collateral consists of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.

Twenty-eight tranches from 12 transactions issued by IndyMac in 2007 have been downgraded by Moody's Investors Service, and 16 tranches have been placed on review for possible downgrade. The downgrades were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.

MBIA Insurance Corp., whose exposure to subprime mortgage collateral recently prompted Fitch Ratings to place its ratings on Rating Watch Negative, has priced $1 billion of 25-year surplus notes, according to its parent company, MBIA Inc., Armonk, N.Y. MBIA Insurance agreed to issue the notes as part of a plan to strengthen its capital. The notes will bear an initial interest rate of 14%, and after Jan. 15, 2013, the rate will be 11.26% above the three-month London interbank offered rate. The notes are callable at par at the company's option on the fifth anniversary of issuance and every fifth anniversary thereafter, MBIA said. The company can be found on the Web at http://www.mbia.com.

Provident Bankshares Corp., Baltimore, has announced that it will take a $28.9 million noncash after-tax charge to its fourth-quarter earnings in connection with a writedown of its REIT trust preferred securities. Provident said the real estate investment trust securities now have a fair market value of $18.6 million, compared with a carrying value of $66.0 million. "Our actions reflect the challenges that Provident and banks across the country are facing on two fronts," said Gary N. Geisel, Provident's chairman and chief executive officer. "First, on a national level, the lack of liquidity of certain bond investments that are tied to the residential housing market, and the resulting accounting adjustments that are required. And second, on a regional level, anticipating the impact of the continuing slowdown of the housing sector on our loan portfolio." The company can be found online at http://www.provbank.com.

Sovereign Bancorp Inc., Philadelphia, is taking a $1.4 billion noncash charge related to a goodwill impairment, of which $800 million is related to its June 2006 acquisition of Independence Community Bancorp, Brooklyn. In addition, Sovereign said it would take a charge of $180 million relating to $950 million in book value of Fannie Mae and Freddie Mac preferred stock. Its fourth-quarter loan loss provision will be $148 million, which exceeds fourth-quarter chargeoffs by $88 million. Finally, the company said it would take $27 million in charges related to financings it has provided to two mortgage companies that have defaulted on their agreements. Sovereign said it has exited some warehouse relationships while restructuring agreements with others and believes its remaining exposure is well contained and reserved against. Sovereign can be found online at http://www.sovereignbank.com.