Servicing

Baker, Donelson, Bearman, Caldwell & Berkowitz, a law firm based in Memphis, has announced the creation of a Subprime Mortgage Task Force, a multidisciplinary practice group of attorneys from across Baker Donelson's five-state footprint in the Southeast and Washington, D.C.Linda S. Finley, a shareholder in the Atlanta office, and Hank Arnold, a shareholder in the New Orleans office, are leading the firm-wide effort. "We've assembled a team of attorneys who can assist clients with the wide spectrum of matters [relating to the subprime mortgage crisis], whether involving complex litigation defense in class-action suits, providing advice on regulatory compliance, or tracking and advancing financial institution client interests before local, state, and federal legislative bodies," said Ben Adams, Baker Donelson's chairman and chief executive officer. The firm said task force members are experienced in areas such as representing lenders, servicers, and investors in state, federal, and bankruptcy courts; default representation; quality control/quality assurance review of suspect loans; loss mitigation; state and federal regulatory compliance; and capital market activities. The firm can be found online at http://www.bakerdonelson.com.

Morgan Stanley plans to close offices and cut several hundred staff members in its residential mortgage area but says it remains committed to the business.The company said it plans, on a net basis, to reduce U.S. positions by 500 and European posts by 100, including 90 in its U.K. mortgage subsidiary, Advantage. In addition, the Wall Street firm's three stand-alone businesses are slated to be combined into one integrated mortgage company with four centrally managed business channels: servicing, conduit, wholesale, and retail. The company can be found on the Web at http://www.morganstanley.com.

Congressionally chartered mortgage giant Fannie Mae has expressed interest in buying C-BASS LLC and its "scratch-and-dent" servicing affiliate, Litton Loan Servicing, Houston, industry sources have confirmed to MortgageWire."They've been working on this for at least two months," said one source familiar with the matter. The source, requesting anonymity, described Fannie's motivations as "charter creep." According to the Quarterly Data Report, Litton Loan Servicing ranks 12th among subprime servicers, with $46 billion in receivables. Two weeks ago, when Fannie Mae chief executive Daniel Mudd was asked by reporters about Litton, he declined to comment. In early August C-BASS was hit by margin calls from its lenders, forcing its two mortgage insurance company owners to write down its value by more than $1 billion. Earlier this year, C-BASS bought Fieldstone Mortgage, Columbia, Md., a nondepository, nonprime lender that has suspended originations.

The residential servicer ratings of IndyMac Bank FSB, a residential mortgage lender and servicer based in Pasadena, Calif., have been placed on Rating Watch Negative by Fitch Ratings.The affected residential ratings (all RPS2-plus) are as follows: primary servicer for prime, alternative-A, and subprime products; and special servicer. The rating actions reflect the corporate rating of the bank's parent company, IndyMac Bancorp, which has been placed on Rating Watch Negative, as well as the "unprecedented disruption of the secondary mortgage market," Fitch said. Fitch rates residential mortgage primary, master, and special servicers on a scale of 1 to 5, with 1 being the highest rating. The rating agency can be found online at http://www.fitchratings.com.

New York Mortgage Trust Inc., a New York City-based real estate investment trust, has announced that it will not pay a common-stock dividend for the third quarter.The REIT said the decision by its board of directors "reflects the difficult market conditions during the third quarter and the company's ongoing focus to conserve capital to build future earnings." The company can be found on the Web at http://www.nymtrust.com.

The Mortgage Bankers Association has released a policy paper that distinguishes the issue of mortgage fraud from predatory lending and discourages adding to or modifying the "already comprehensive" list of federal fraud statutes.The MBA's policy paper, Mortgage Fraud: Strengthening Federal and State Mortgage Fraud Prevention Efforts, recommends that Congress increase the resources available to law enforcement and help facilitate the coordination of federal and state law enforcement of financial crimes. "We do not need more federal laws to combat fraud," said Jonathan L. Kempner, president and chief executive officer of the MBA. "Instead, we need a more coordinated effort and more resources to investigate and prosecute. In addition to being illegal and costly, we know that fraud has also contributed to the recent rise in delinquencies and foreclosures, and the industry and government must step up our anti-fraud efforts to help curtail these related problems." The FBI has estimated that fraud cost mortgage lenders as much as $4.2 billion in 2006. The MBA can be found online at http://www.mortgagebankers.org.

Citigroup said Monday that it would take a $1.3 billion pretax charge on the value of subprime mortgage securities that are part of current collateralized debt obligations or that are warehoused for inclusion in future CDOs.The subprime-related charges also cover collateralized loan obligations, or CLOs. Additionally, Citi will take a $1.4 billion charge on what it calls "unfunded highly leveraged finance commitments." These writedowns -- and others -- will be taken when Citigroup reports third-quarter results. The banking giant blamed the writedowns on "dislocations" in the mortgage-backed security and credit markets. It estimates that its third-quarter earnings might fall by as much as 60% because of these and other charges. The company can be found online at http://www.citigroup.com.

The Office of Thrift Supervision has closed NetBank in Alpharetta, Ga., after the $2.5 billion thrift sustained "significant losses" in its mortgage banking business and was unsuccessful in completing a private sale.NetBank, which opened as an Internet bank in 1997, is still solvent, but the OTS said the depository had no remaining prospects for raising capital or achieving profitability. "While the institution continued to operate in excess of minimum capital standards, the actions taken to address these problems were unsuccessful and it became clear that high operating expenses combined with continuing losses were jeopardizing the institution's viability," the regulator said. As the receiver, the Federal Deposit Insurance Corp. has arranged for ING Bank, Wilmington, Del., to assume the insured deposits. The Internet bank had $109 million in uninsured deposits, and those depositors will become creditors of the receivership. Meanwhile, EverBank, Jacksonville, Fla., has agreed to purchase $700 million in mortgages and the FDIC will retain $1.1 billion in assets. The FDIC says it expects the bank failure to cost the Deposit Insurance Fund $110 million.

Class M-3 of FNBA Mortgage Loan Trust 2004-AR1 has been placed on review for possible downgrade by Moody's Investors Service.The rating action was attributed to credit enhancement levels that are deemed to be low given the projected losses on the underlying pools. "The pool of mortgages has seen a spike in losses in recent months, and future losses could cause a more significant erosion of the overcollateralization," Moody's said. The transaction consists of alternative-A first-lien hybrid adjustable-rate loans.

Two classes of notes issued by Enhanced Mortgage-Backed Securities IV Ltd., a mortgage market value collateralized debt obligation, have been downgraded by Fitch Ratings.Class A-4 was downgraded from BB-minus to B, and preference shares were downgraded from B-minus to CCC/DR5. Both classes remain on Rating Watch Negative, and class A-2 from the deal was placed on Rating Watch Negative. The downgrades were attributed to concerns about the proceeds that are likely to result from the sale of assets in view of current price volatility. The watchlist placement was based on Fitch's view that breaches of the transaction's overcollateralization tests "may occur in the near future," the rating agency said. The collateral of the CDO consists of mortgage- and asset-backed securities, other CDOs, and agency obligations.