Servicing

Fitch Ratings has downgraded the CDO asset manager ratings of six asset managers of collateralized debt obligations: Declaration Management and Research LLC, Duke Funding Management LLC, GE Asset Management, Rabobank, Trust Company of the West, and Vertical Capital LLC.Fitch said the ratings of four CDO asset managers were also placed on Rating Watch Negative, and the ratings of seven were affirmed. The downgrades were as follows: Declaration Management and Research, from CAM2-minus to CAM3; Duke Funding Management, from CAM1-minus to CAM2-plus (and placed on Rating Watch Negative); GE Asset Management, from CAM2-minus to CAM3-plus; Rabobank, from CAM2 to CAM2-minus (and placed on Rating Watch Negative); Trust Company of the West, from CAM1-minus to CAM2; and Vertical Capital, from CAM2 to CAM3-plus. The asset manager ratings of First Republic Investment Management (Trainer Wortham) and Solent Capital were also placed on Rating Watch Negative. Fitch rates asset managers of collateralized debt obligations by asset class on a scale of 1 to 5, with 1 being the highest rating.

Residential Capital LLC, Minneapolis, has announced the commencement of a cash tender offer for up to $750 million in aggregate principal amount of four issues of its debt securities.ResCap said the total consideration for each $1,000 in principal amount of notes accepted for purchase will be as follows (and in the following order of acceptance priority): $830 for floating-rate notes due June 9, 2008; $760 for floating-rate notes due Nov. 21, 2008; $760 for 6.125% notes due Nov. 21, 2008; and $500 for subordinated floating-rate notes due April 17, 2009. The tender offer will expire at midnight Eastern time on Dec. 19. ResCap can be found on the Web at http://www.rescapholdings.com.

Countywide Bank turned to the Atlanta Federal Home Loan Bank during the tumultuous third quarter and dramatically increased its borrowings of advances to $51 billion.While other mortgage lenders were facing a funding crunch, Countrywide Financial Corp., Calabasas, Calif., had integrated its mortgage lending operations into its McLean, Va.-based thrift, which is the Atlanta FHLBank's largest borrower, with 36.8% of outstanding advances. Nearly 90% of Countrywide's loan production was funded through the thrift in September. Countrywide Bank is the third-largest federal savings bank in the United States. At the end of 2006, Countrywide Bank had $28.2 billion in advances from the Atlanta FHLBank. The FHLBank's second-largest borrower was SunTrust Bank, with $7.4 billion in advances. Countrywide can be found on the Web at http://www.countrywide.com.

California Gov. Arnold Schwarzenegger has enlisted four major subprime servicers to streamline their loan modification procedures for adjustable-rate mortgages with the aim of mitigating a "foreclosure crisis" in his state.Countrywide Financial Corp., GMAC Residential Holding Corp., Litton Loan Servicing LP and Barclays' HomeEq unit have agreed to keep subprime borrowers at their initial interest rates if they can't afford their resets. The governor said his state is facing a foreclosure crisis and half a million California borrowers have subprime mortgages that will reset to a higher rate in the next two years. "With this kind of cooperation from loan servicers, we can save tens of thousands of people from being added to the foreclosure lists," Gov. Schwarzenegger said.

Hanover Capital Holdings lost $31 million, or $3.83 per share, in the third quarter, and the company said it will not pay a third quarter dividend.Hanover said the loss primarily reflects a $30.2 million impairment expense in the fair value of the company's subordinate MBS portfolio. The company also saw net interest income decline by $1.5 million due to higher financing costs under a new fixed-term credit facility the company established in August. John Burchett, president and CEO, said the company's board did not declare a dividend "due to continued uncertainties in the mortgage industry, the current interest rate environment and our net loss for the quarter."

Former Housing and Urban Development Secretary Henry Cisneros, who recently resigned from the board of Countrywide Financial Corp., plans on selling his holdings in the troubled lender -- all 25,337 shares worth.According to a Form-4 filed with the Securities and Exchange Commission, Mr. Cisneros signaled his intention to sell his stake in the company beginning Nov. 6. (In trading Nov. 19, Countrywide's shares reached a new 52-week low of $10.25.) Meanwhile, according to an investment newsletter called tickerspy.com, investor George Soros now owns 1.8 million shares in Countrywide. On Monday it was also revealed that Countrywide is paying more to insure the debt of its home loan unit. That cost jumped 30%, or 787 basis points ($787,000 per year for five years to insure $10 million in debt), according to Markit Intraday.

Home values nationwide have declined 5.7% during the past 12 months, according to Zillow's Q3 2007 Home Value Report, leaving many recent homebuyers with negative equity.Zillows, an online real estate data provider, estimates that 16% of homeowners who bought in the last year and almost 18% who bought two years ago have current home values that are below the original mortgage amount. By comparison, fewer than 2% of owner who bought a home five years ago have seen their equity slide into negative territory, Zillows said. Markets with the greatest proportion of negative equity include California's Central Valley, parts of Florida and Las Vegas, Zillows said.

Thrift institutions originated 30% of all 1-4 family mortgages in the third quarter but their earnings tumbled to $704 million, down from $3.83 billion in second quarter, according to the Office of Thrift Supervision.OTS officials blamed the 82% drop in earnings mainly on secondary market conditions that forced 10 thrifts recognize on losses on their mortgage pipelines and reduced gains on sales. Portfolio lenders did not fairly well in the third quarter. Federally chartered thrifts also increased the loan provisions to 0.92% from 0.38% in the second quarter as charge-offs rose 8 basis points to 0 .43% Charge-offs on single-family loans jumped to $569.5 millions from $312.6 million the second quarter. OTS officials expect charge-offs to increase in coming quarters. Meanwhile, thrifts originated $165.1 billion in 1-4 family mortgages, down 5% from the second quarter, but up 10% from a year ago. Refinancings accounted for 44% of loan production.

The C-BASS-owned Fieldstone Mortgage of Maryland - which ceased funding loans in late July - has closed its doors and is no longer taking any applications, according to a posting on its website."We will continue to work with customers and brokers in providing them with information," Fieldstone said. A non-prime lender, Fieldstone ranked 26th among subprime funders last year, according to the Mortgage Industry Directory. The New York-based C-BASS, which is owned by two publicly traded mortgage insurers, has troubles of its own. In July it was hit by what its parent companies called an "unprecedented amount" of margin calls. In the wake of the margin calls MGIC and Radian wrote down their interest in C-BASS by $1 billion. The two MIs tried to sell some of C-BASS's assets, including its Litton Loan Servicing unit, but a deal with Goldman Sachs fell apart.

The Office of Thrift Supervision is refining a policy position on loan modifications that would compensate servicers and allow adjustable-rate subprime borrowers to stay at the initial interest rate for 36 months if they can't afford their payments once the mortgage resets.OTS director John Reich has discussed the proposal with Treasury Department officials and he believes a three-year modification period is consistent with current servicing contracts and could be used by all servicers - not just thrift institutions. Mr. Reich told reporters he is "not comfortable" with proposals that call for converting 2/28 ARMs to 30-year fixed rate mortgages. Under his proposal, borrowers that are current and borrowers that became delinquent because of a reset could be eligible for a loan modification. However, each eligible borrower would have to make their monthly payment for six months before the modification becomes permanent. Servicers would be paid $500 for each loan modification Mr. Reich plans to discuss the loan modification proposal at OTS' housing conference on Dec. 3 at the National Press Club in Washington.