Servicing

Six classes of notes issued by Duke Funding XIII Ltd., a collateralized debt obligation based largely on subprime residential mortgage-backed securities, have been placed on Rating Watch Negative by Fitch Ratings.The affected securities are classes A1J, A2S, A2J, A3, B1, and B2. The negative rating actions resulted from collateral deterioration, as 8.7% of the portfolio has been downgraded or placed under review for possible downgrade by at least one rating agency, Fitch reported. The hybrid structured finance CDO consisted, at closing, of 91.4% credit default swaps referencing chiefly subprime residential mortgage-backed securities, the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.

The Federal Housing Finance Board has finalized a cease-and-desist order that will prevent all stock redemptions at the Federal Home Loan Bank of Chicago without the FHFB's approval.The C&D order also requires the Chicago FHLBank to start phasing out the use of $1 billion in subordinated debt as capital after three years. "The action was necessary to improve the condition and practices of the bank, stabilize its capital" and address certain "supervisory concerns," the Finance Board said. In a letter to members, Chicago FHLBank president Mike Thomas acknowledged that the bank may have to make some changes in its operations. "As the issues in the order are addressed, the board and staff of the bank will continue their work to advance the mission of the bank and to explore appropriate strategic alternatives, including the possibility of a merger with the Federal Home Loan Bank of Dallas," Mr. Thomas said. The Finance Board can be found online at http://www.fhfb.gov, and the Chicago FHLBank can be found at http://www.fhlbc.com.

Lots of new real estate owned inventory will be coming into the market during the rest of 2007 and into 2008, and it will be tough to unload them, economist Christopher Thornburg has told attendees at the REOMAC Fall Conference in Hollywood, Fla."Cut the prices on these homes and sell them now, because it will be hard to get them off your books," said Mr. Thornburg, who is a founding partner of Beacon Economics. The peak of adjustable-rate mortgage resets will occur in mid-2008 and there will be a first-quarter recession, he predicted. The credit crisis is not over and real estate prices will fall 20% before the worst is over, Mr. Thornburg said. The commercial sector will be hit next, as the retail and office sector are not looking well. Mr. Thornburg told the crowd that Congress is looking into three bills to change the bankruptcy law and get rid of foreclosures. If these bills are approved, a bankruptcy judge would take control of the borrower's house and other assets and rewrite the borrower's mortgage. Borrowers who took out loans during the last three years would qualify under these laws, he said.

More than 223,000 foreclosure filings were reported nationwide in September, down 8% from the level recorded in August but up 99% from that of a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.The nation's foreclosure rate stood at one foreclosure filing for every 557 households, the company said in its September 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "U.S. foreclosure activity experienced a fairly broad-based retreat in September, with 39 states reporting decreasing activity and national numbers down in all foreclosure categories -- defaults, auctions, and bank repossessions," said James J. Saccacio, chief executive officer of RealtyTrac. "Nevertheless, it's important to note that September's total was still the second-highest monthly total we've seen since we began issuing our report in January of 2005." The company said Nevada, Florida, and California recorded the highest foreclosure rates in September. The company can be found online at http://www.realtytrac.com.

Countrywide Financial Corp., Calabasas, Calif., had a 1.27% foreclosure rate on its servicing portfolio at the end of September, a 149% increase from that of the same period last year.According to September operational figures released by the company, Countrywide serviced $1.459 trillion worth of loans at Sept. 30, which means $18.5 billion worth of mortgages it services are in the "foreclosures pending" category. Roughly 5.85% of its servicing portfolio is delinquent. Countrywide funded $21 billion in loans in September, a 44% decline from the level recorded in September 2006. It also saw its employee headcount fall by 4,935 during the month, most of it, presumably, due to layoffs. The company can be found online at http://www.countrywide.com.

Neighborhood Assistance Corporation of America is calling for a nationwide boycott against Countrywide Financial Corp., contending that the nation's largest mortgage lender and servicer is refusing to restructure loans so that homeowners can afford the payments and avoid foreclosure."Countrywide is the number one example of the abuses in the subprime industry," NACA chief executive Bruce Marks said. NACA plans to conduct demonstrations at Countrywide offices and discourage people from getting mortgages or certificates of deposit from the Calabasas, Calif.-based company. Countrywide had not commented by deadline time. NACA launched a campaign against Countrywide in August to draw regulators' attention to the company's lending and servicing practices. The Boston-based activist group has waged campaigns about other subprime lenders and has a mortgage broker operation that provides low-cost, fixed-rate mortgages to low- and moderate-income people.

The North Carolina state treasurer has asked the Securities and Exchange Commission to investigate stock sales by Countrywide Financial Corp. founder, chairman, and chief executive Angelo Mozilo.The letter to SEC Chairman Christopher Cox from North Carolina Treasurer Richard H. Moore says, "I was shocked to learn that CEO Angelo Mozilo apparently manipulated his trading plans to cash in, just as the subprime crisis was heating up and Countrywide's fortunes were cooling off." According to the letter, Mr. Mozilo accelerated his stock selling as the publicly traded lender's fortunes continued to wane. (Over the past few years, Mr. Mozilo has exercised options and sold more than $300 million worth of stock.) North Carolina pension funds own at least 500,000 shares of Countrywide stock. The request to investigate comes as Mr. Mozilo continues to exercise options and sell shares in the ailing lender. (On Oct. 10, Mr. Mozilo exercised options at $9.94 and sold $2.6 million worth of stock.) In about two weeks, Countrywide will release its third-quarter earnings. Morgan Stanley recently said Countrywide could lose at least $2.4 billion in the quarter. At deadline time, Countrywide's spokesman Rick Simon had not returned a telephone call about the North Carolina request.

Two classes of notes issued by Silver Marlin CDO I Ltd., a structured finance collateralized debt obligation consisting predominantly of residential mortgage-backed securities, have been placed on Rating Watch Negative by Fitch Ratings.The affected notes were classes D and E. The negative rating actions were based on a deterioration in collateral quality, the rating agency said. Fitch said 18.6% of the portfolio consists of 2006 vintage subprime RMBS collateral and 10.9% consists of prime RMBS collateral, and its exposure to 2007 vintage RMBS totals 8.5% subprime RMBS and 20.5% prime RMBS. The rating agency can be found on the Web at http://www.fitchratings.com.

The Mortgage Bankers Association has announced the addition of the Foreclosure Prevention Resource Center to its consumer education site, HomeLoanLearningCenter.com.The center is part of the MBA's effort to advise those who face trouble making their loan payment to contact their loan servicer as soon as possible to determine whether an alternative to foreclosure may be possible based on the borrower's financial and employment status. The bilingual site includes a listing of major loan servicers and their contact information as well as a guide to "Things to Know When You Contact Your Lender" so distressed borrowers can have an informed discussion with their servicer. "The sooner a borrower who is having trouble contacts his or her servicer, the more options they may have to make alternate arrangements," said MBA president and CEO Jonathan L. Kempner. The MBA's consumer education site can be found online at http://www.homeloanlearningcenter.com.

The American Securitization Forum, mortgage servicers, and counseling organizations have formed an alliance called "Hope Now" to create a plan to help as many homeowners as possible avoid foreclosure."Finding solutions for consumers should not and cannot be a one-size-fits-all approach" Michael Heid, co-president of Wells Fargo Home Mortgage, said at a Treasury Department news conference. "But it can become a much more coordinated process between servicer and counselor." The ASF announced a new servicing recommendation that would allow counseling fees to be expensed against the cash flows of mortgage-backed securities. "We believe that it will facilitate the valuable work of mortgage counseling to help servicers and borrowers evaluate all the available options to prevent unnecessary loan defaults and foreclosures," said ASF associate director Tom Deutsch. Treasury Secretary Henry Paulson welcomed the formation of the new alliance, noting that its members service 60% of all mortgages. "The coalition has a lot of work to do," the secretary said. The ASF can be found on the Web at http://www.americansecuritization.com.