Servicing

Late Wednesday Bank of America invested $2 billion in Countrywide Financial Corp., the nation's largest home lender, a possible sign that the mortgage liquidity crisis could be ebbing somewhat -- but only for conventional lenders. (See Angelo Mozilo's confidential memo to employees.)The news came just after Lehman Brothers closed its subprime unit, BNC Mortgage, and Quality Home Loans, the nation's largest "hard money" lender filed for bankruptcy protection. In a memo sent to employees CFC chairman, co-founder and CEO Angelo Mozilo said, "Through this important investment from Bank of America, today, Countrywide's future is much brighter." A little over a week ago, CFC's future was in doubt after a Merrill Lynch analyst, Kenneth Bruce, suggested that if the industry's liquidity crisis continued the lender might be forced into bankruptcy. Specifically, BoA invested $2 billion in the form of a non-voting convertible preferred security yielding 7.25% annually. The security can be converted into common stock at $18 per share, with resulting shares subject to restrictions on trading for 18 months after conversion.

Fitch has placed 131 pre-2006 transactions and 104 additional first-lien U.S. subprime transactions originated in 2006 "under analysis."The rating agency said this affects a total of 235 deals representing $92.1 billion of debt outstanding, including $4.2 billion in bonds rated BBB or lower. The bonds rated BBB or below are the ones most likely to face rating actions, Fitch said. Fitch can be found on the Web at http://www.fitchratings.com.

Home equity delinquency rates continued to rise in June while jumbo delinquencies stayed relatively flat, according to Moody's Investors Service reports.The 60-plus day HE delinquency rate based on current balance rose to 13.20% in June from 12.35% in May and jumbo delinquencies in that category were 0.417%, relatively unchanged from the previous month's level of 0.421%, Moody's said. Moody's can be found online at http://www.moodys.com.

With its acquisition by Lone Star Fund V (U.S.) LP in doubt, Accredited Home Lenders Holding Co., San Diego, has announced a restructuring program that shuts down its U.S. mortgage originations operations for the time being.The company said it is closing all of its retail operations as of Sept. 5. This consists of 60 retail branches, five support locations and 480 people. The only retail to continue to operate will be the San Diego-based customer retention unit. Furthermore, five of the 10 wholesale divisions will shut on Sept. 5. Overall, it will reduce its wholesale workforce by 490 people, leaving 340 people employed. In addition, Accredited said it is not accepting any new applications in the U.S. Its headquarters staff will be cut by 180 positions. The company said the moves do not affect its Canadian mortgage originations business or its U.S. loan servicing platform. Accredited said this restructuring, plus the $1 billion loan trade will allow it to survive off of securitization cash flows, servicing income and other income until it can resume loan origination operations.

Fitch Ratings has downgraded two classes of notes issued by Whatley CDO I Ltd., citing "credit deterioration in the subprime residential mortgage-backed securities space." Specifically, Fitch lowered the ratings of classes BF and BV and affirmed the ratings of five other classes of the collateralized debt obligation. Fitch can be found online at http://www.fitchratings.com.

Thrift institutions originated $173.3 billion in single-family loans in the second quarter, up 17% from the same period a year ago, and posted strong profits despite an increase in troubled assets.Noncurrent loans and foreclosures stood at 0.95% of total assets as of June 30 -- the highest level since 1997, according to the Office of Thrift Supervision. Single-family loans 90-days or more past due have risen from 76 basis points at the start of the year to 1.16%. OTS officials expect delinquencies to increase but they noted thrifts are increasing their reserves faster than charge-offs are rising. Meanwhile, refinancings comprised 48% of thrift originations as adjustable-rate mortgage holders continued to convert into fixed-rate loans. Thrifts generally like to sell fixed-rate loans and OTS officials noted there is a "chance" they might have problems selling loans due to current problems in the credit markets. However, OTS senior deputy director Scott Polakoff noted that thrift institutions are well capitalized and they originate high quality mortgages. "Our institutions are well positioned to weather this stressed economic time and come out very successful," Mr. Polakoff told reporters.

Hanover Capital Mortgage Holdings Inc., Edison, NJ, has taken an $11.4 million net loss for the second quarter and decided not to declare a dividend, primarily due to market uncertainties and their effect on the company’s subordinate mortgage-backed securities.HCM’s second quarter loss is down from net income of $900,000 during the same period in 2006. The company in the second quarter of this year suffered $11.8 million in impairment expense for other than temporary declines in the fair value of its subordinate MBS and a reduction in gains from sales of its subordinate MBS partially offset by an increase in net interest income on its subordinate MBS. It plans to "revisit the dividend issue" in the third quarter. HCM can be found online at http://www.hanovercapitalholdings.com.

Friedman, Billings, Ramsey Group Inc., Arlington, Va., has sold about $4.95 billion of agency mortgage-backed securities at a loss of approximately $57 million to reduce leverage and "better position" itself in the uncertain asset-backed financing market.The loss includes $17 million that was included in accumulated other comprehensive income as of June 30 as a reduction in book value. The sale leaves FBR with a remaining agency and mortgage-backed securities portfolio of approximately $1.2 billion. FBR can be found on the Web at http://www.fbr.com.

MGIC Investment Corp., Milwaukee, has filed suit in the Federal District Court in Milwaukee looking for a court order to have the Radian Group Inc., Philadelphia, "provide MGIC with certain information needed by MGIC's management" to complete its analysis on whether it should pull out of the merger transaction.Back on Aug. 7, MGIC said it was not obligated to complete the merger because of the problems at C-Bass, a joint venture owned by both companies. At that time MGIC said it was looking to complete its analysis by the week of Aug. 13. In a statement, Radian said it was "disappointed that MGIC filed a lawsuit." It said it never consented to MGIC's timeline and "is compelled to carefully assess the proprietary nature of the subsequent information requests to ensure that Radian does not provide MGIC with an unfair competitive advantage" if the deal does not take place.

Lone Star Fund V (U.S.) LP, Dallas, denies it is in breach of its obligations to purchase Accredited Home Lenders Holding Co., San Diego.The company has made a formal legal filing in response to Accredited's lawsuit of Aug. 13 seeking to force Lone Star to complete the tender offer for the nonprime wholesaler. In its counterclaim, Lone Star said Accredited has suffered a material adverse effect and has materially breached other obligations and that Lone Star is entitled to terminate the merger agreement. Lone Star claims Accredited's only contractual remedy is the payment of a reverse break-up fee of $12 million. Meanwhile Accredited has agreed to trade $1 billion of loans under a 90-day purchase agreement with an unnamed investor at an advance rate comparable to the advance rates it receives from its warehouse lenders. The initial settlement of an approximately $500 million pool occurred on Aug. 17. Accredited at its discretion can repurchase of all the traded loans through mid-November 2007 at a premium to the advance rate. "If the market improves to a rational level, our intention is to repurchase these quality loans by mid-November and sell or securitize them," said Accredited chairman and chief executive James Konrath. The deal takes away Accredited's exposure to margin calls on these loans.