Servicing

E*Trade Financial -- which is undergoing a wrenching restructuring -- said Wednesday that it has sold an additional $3 billion worth of bonds, including mortgage-backed securities and municipals. The bank/online brokerage firm said it took a $5 million loss on the sales which occurred in separate transactions over the past several weeks. (In November it sold $3 billion in asset-backed securities.) The New York-based E*Trade also said its home equity portfolio is continuing to "run off as anticipated" and totaled just under $12 billion in loans at year's end. Early in the fall, E*Trade closed its wholesale residential unit and booked a $245 million charge against earnings because of bad home equity loans and what it called a "deterioration in the mortgage market."

Fast-tracking loan modifications and freezing the interest rate on adjustable-rate subprime mortgages will not jeopardize the accounting and tax status of the mortgage-backed securities, according to an opinion by the Securities and Exchange Commission chief accountant. SEC chief accountant's opinion gives the green light for servicers to implement the fast-track loan modification framework endorsed by the Treasury Department, the Hope Now Alliance, and the American Securitization Forum. ASF deputy executive director Tom Deutsch welcomed the SEC's guidance. "It is imperative for subprime mortgage servicers to have confidence that implementing the fast-track loan modification segment of the ASF framework will not alter the accounting treatment of securitization trusts." SEC chief accountant Conrad Hewitt said in a letter that the vast majority of subprime loan modifications are expected to begin in early 2008. "The Office of Chief Accountant believes this is an appropriate interim step at this time to address this issue given the complexity and lack of specific guidance on the accounting and disclosure for these types of modifications." Mr. Hewitt noted, however, that the letter is not an opinion on the legality of modifying subprime mortgages.

Countrywide Financial Corp. Tuesday afternoon denied rumors that the company is planning to file for bankruptcy protection. In a statement, it added: "We are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company." The bankruptcy rumor began to circulate late Tuesday morning after the firm's share price fell more than 16% to a new 52-week low, $5.76. There was no major news on the company except for a New York Times report that cited allegations that a Countrywide employee may have recreated documents tied to a consumer's bankruptcy filing in Pennsylvania. A company spokesman said Countrywide, as a policy, does not fabricate documents.

Countrywide Financial Corp. -- the nation's largest residential servicer, with $1.5 trillion in receivables -- saw its foreclosure rate spike to 1.44% at the end of December, a stunning 105% increase from the rate recorded a year earlier. Based on unpaid principal balances, that means $21 billion of loans that it owns the servicing rights to are pending foreclosure. (Based on number of loans serviced, the rate is 1.04%, or almost 94,000 loans.) Meanwhile, delinquencies in its gargantuan servicing portfolio increased to 7.20% at year's end, a 56% rise from the level at Dec. 31, 2006. The figures were disclosed in its monthly operational statement released Jan 9. It funded $24 billion worth of new loans in December, up slightly from the volume in November, but down 46% from that of the same month in 2006. Countrywide can be found on the Web at http://www.countrywide.com.

Three classes of mortgage pass-through securities issued by Nomura Asset Acceptance Corp. have been downgraded by Fitch Ratings. The downgrades were as follows: series 2001-R1, class B-2, from A to CCC/DR2, and class B-3, from B to C/DR5; and series 2003-A1, class B4, from BB to B (and removed from Rating Watch Negative). Fitch also affirmed the ratings on seven other classes in the two transactions. The downgrades reflect deterioration in the relationship between loss expectations and credit support levels, Fitch said.

Twelve classes of mortgage-backed securities issued by Credit Suisse First Boston Home Equity Asset Trust 2007-3 were downgraded by Fitch Ratings on Jan. 7 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of more than $170 million. The downgrades were attributed to changes in 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."

Forty-six tranches from eight mortgage-backed securitizations issued by Bear Stearns in 2007 have been downgraded by Moody's Investors Service, and 11 tranches 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. Moody's can be found on the Web at http://www.moodys.com.

Continuing market concerns related to subprime mortgage woes are expected to reduce the overall annual issuance of fixed-income securities by 15% to $3.4 trillion in 2008, according to the Securities Industry and Financial Markets Association. "Issuance is expected to decline significantly in the sectors most affected by subprime mortgage deterioration, while both corporate and municipal issuance are projected to remain high relative to historic levels," said SIFMA, in a forecast based on a survey of its member firms. The association can be found online at http://www.sifma.org.

The Community Reinvestment Act may have deterred banks from engaging in the kind of risky mortgage lending that has led to the foreclosure crisis, according to a Traiger & Hinckley LLP study of 2006 loan data. The company said the study indicates that banks making loans in their CRA assessment areas were less likely to make high-cost loans, charged less for the ones they did make, and were "substantially more likely" to avoid the secondary market and retain high-cost loans and other loans in their portfolios. "Without the CRA, the foreclosure crisis might have negatively impacted even more borrowers and neighborhoods," said Warren Traiger, a partner in the law firm. The study is available at http://www.traigerlaw.com.

Since August, financial institutions across the globe have written down the value of their nonprime mortgage assets by about $94 billion, according to a new tally done by Friedman, Billings, Ramsey & Co. FBR noted that in addition to the writedowns, financial institutions -- including depositories -- have taken $14.7 billion in what it calls "elevated loss provisions." FBR estimated that banks could suffer $59 billion to $148 billion of losses on their portfolios over the next few years. It says banks that had high concentrations of subprime and alternative-A loans, payment-option adjustable-rate mortgages, home equity lines of credit, and other nontraditional loans will suffer the most. The company can be found online at http://www.fbr.com.