Servicing

Freddie Mac officials, noting that they are being "conservative" in their loss estimates, on Tuesday forecasted $16.4 billion in future "credit costs" to cover writedowns but believe the actual loss experience will be $10 billion to $12 billion.Discussing its poor third quarter performance, company officials predicted dismal fourth quarter results as well. It also was hinted that Freddie tried to obtain a regulatory waiver on maintaining a 30% excess capital ratio but was rejected by the Office of Federal Housing Enterprise Oversight. All the bad news was not what stock analysts wanted to hear. During the conference call, company CEO and chairman Richard Syron suggested that a preferred stock offering to bolster its capital position was imminent.

Stung by declining home values and subprime delinquencies, Congressionally chartered mortgage giant Freddie Mac posted a $2 billion loss in the third quarter, noting that it may raise additional capital in "the very near term" so it can meet a 30% minimum capital standard. Early Tuesday morning it was unclear how much of its 3Q loss is directly tied to markdowns on the value of its $120 billion subprime portfolio. It experienced GAAP mark-to-market losses of $3.6 billion in the quarter, which includes $2.3 billion in credit items and $1.5 billion in interest-rate items. "Weakening house prices and deteriorating credit have hurt Freddie Mac's results, as well as those of other participants in the mortgage market," said Buddy Piszel, chief financial officer. "You can see the impact of these trends in our credit results and throughout our financial statements. Year-to-date, we have recognized $4.6 billion in net credit-related items on a pre-tax basis."

Fannie Mae has priced an offering of $500 million of noncumulative, perpetual, fixed-rate preferred stock.The 20 million shares of series R stock (CUSIP 313586760) have a stated value of $25 per share, with an annual dividend rate of 7.625%. Fannie Mae will have the option to redeem all or part of the series R preferred stock on or after Nov. 21, 2012. Lehman Brothers Inc. and Morgan Stanley are the lead underwriters of the issue, Fannie Mae said.

The long-term issuer default ratings of Fulton Financial Corp., Lancaster, Pa., and certain affiliates have been downgraded from A to A-minus by Fitch Ratings, which cited early payment defaults on 80/20 piggyback mortgage loans originated by Fulton's Resource Bank subsidiary.The short-term ratings of Fulton and its affiliates were affirmed at F1, and the rating outlook is stable. Fitch said it expects "continued pressure on earnings in tandem with the likelihood of further increases in nonperforming assets." Resource Bank had been originating piggyback, low-documentation loans through a national broker network, and investors began requesting that the bank repurchase the loans in the first quarter due to early payment defaults, Fitch reported. The rating agency can be found online at http://www.fitchratings.com.

Meanwhile, Marshall & Ilsley Corp., Milwaukee, has reported that its total credit exposure to Franklin Credit Management and a subsidiary stood at $282 million as of Oct. 31, and M&I said any losses related to that exposure are not expected to be material to its financial results.M&I said all its loans to Franklin and the subsidiary, Tribeca Lending Corp., were current and performing as of Oct. 31. Of the mortgage pools securing M&I's loans to Franklin, more than half of approximately $123 million originated since 2005 are current and performing, and "any losses imbedded in the remaining amount are not expected to be material to M&I's financial results," the company said. M&I can be found on the Web at http://www.micorp.com.

Huntington Bancshares Inc., Columbus, Ohio, has announced that it will take a fourth-quarter charge of up to $300 million that will produce a net loss for the company, citing a need to shore up loan-loss allowances in connection with about $1.5 billion in loans to Franklin Credit Management Corp.Franklin, a New York-based company that acquires, originates, and services residential mortgage loans, recently announced the suspension of loan acquisition and origination and a delay in reporting its third-quarter operating results. "We only recently learned of Franklin's actions to reassess the adequacy of their loan-loss reserves," said Thomas E. Hoaglin, Huntington's chairman and chief executive. "Franklin's mortgages represent the underlying collateral for our loans to Franklin. As a result of this new information, we needed to reassess the collectability of the Franklin loans." As a result of Huntington's announcement, Fitch Ratings downgraded the company's long-term issuer default rating from A to A-minus, while affirming its short-term IDR at F1.

Former alternative-A giant Impac Mortgage Holdings has revealed that it has been the subject of margin calls from Bear Stearns, noting that it cannot file its third-quarter financials on time and expects to report a larger-than-anticipated loss.Impac also revealed that it now has a "stockholders' deficit." At deadline time, its shares were trading down 10% to a new 52-week low of $0.68. In a filing with the Securities and Exchange Commission, Impac -- a publicly traded real estate investment trust -- said Bear Stearns had seized $286 million in residential loans from the company because of unmet margin calls. It also said it was in "technical default" on several warehouse lines. In late September, the Irvine, Calif.-based company exited most origination markets, and closed its warehouse and commercial mortgage divisions. Impac can be found online at http://www.impaccompanies.com.

Freddie Mac could take an impairment charge ranging from $1 billion to $5 billion on its subprime mortgage investments, according to a Credit Suisse report released Monday morning.The government-sponsored enterprise is slated to report third-quarter earnings on Tuesday and was not commenting on the projections made by Credit Suisse analyst Moshe Orenbuch. Freddie owns roughly $120 billion in subprime-related asset-backed securities, which are triple-A rated. A spokeswoman noted that the investments have senior/subordinated enhancements and that for the government-sponsored enterprise to take a loss, all the subordinated pieces would have to be wiped out first. In his report, Mr. Orenbuch says Freddie's subprime investments "likely have substantial subordination." He refers to the anticipated writedowns as an "other-than-temporary" impairment charge. Credit Suisse also reduced its 12-month price target on the stock from $68 to $45. Credit Suisse can be found on the Web at http://www.credit-suisse.com.

The Federal Home Loan Bank of Chicago reported net income of $24 million in the third quarter, down from $27 million in the second quarter (not down from $50 million, as a previous Wire item incorrectly reported). A spokeswoman for the FHLBank pointed out that a restatement has increased the FHLBank's first-half earnings upward by $2 million to $52 million.

Class B-5 of Sequoia Mortgage Funding Corp. mortgage pass-through certificates, series 2005-2, has been placed on Rating Watch Negative by Fitch Ratings.Fitch also affirmed the ratings on 17 classes from three Sequoia transactions issued in 2005. The negative rating action was attributed to a high balance of loans with serious delinquencies. The collateral consists of prime adjustable-rate mortgage loans indexed to the one-month and six-month London interbank offered rates.