Servicing

There is "no quick solution" to the problems in the credit markets, Treasury secretary Henry Paulson said, but he noted that the Bush administration is considering ways to help homeowners who are facing foreclosure."We are really focused on the homeowners who are in danger of losing their homes and thinking about policy options to address that segment of the market," secretary Paulson said during an interview on CNBC-TV. The secretary did not reveal any proposals for homeowner assistance. However, it is known that Department of Housing and Urban Development officials are working on a proposal that would allow delinquent subprime borrowers to refinance into a Federal Housing Administration-insured mortgage. Congress is on track to provide $100 million in additional funding for foreclosure prevention counseling and some senators want to provide funding to bolster state-sponsored foreclosure rescue funds. The Treasury secretary said it will "take a while" to workout all the excesses and bad lending practices of the past few years. But he noted that he is seeing signs of more liquidity in the jumbo nonconforming market.

July foreclosure filings -- including default notices, auction sale notices and bank repossession -- rose 93% from July 2006 and were up 9% from June, according to the latest U.S. Foreclosure Market Report from RealtyTrac."While 43 states experienced year-over-year increases in foreclosure activity, just five states -- California, Florida, Michigan, Ohio and Georgia -- accounted for more than half of the nation’s total foreclosure filings," said James J. Saccacio, chief executive officer of RealtyTrac. A few states actually reported declining foreclosure activity on a year-over-year basis. Mr. Saccacio said some of these states could be benefiting from increased interest from real estate investors who have pulled out of more volatile markets.

Fitch Ratings has downgraded certain notes from at least three collateralized debt obligation transactions: Independence V CDO Ltd., Northlake CDO I, and Dunloe 2005-1 Ltd.The rating agency downgraded: all of Dunloe 2005-1's notes; the class C notes and series 1 and 2 preference shares of Independence V and the class II and III notes of Northlake CDO I. Fitch Ratings can be found online at http://www.fitchratings.com.

Standard & Poor's latest assessment of first-lien alternative-A credit residential mortgage-backed securities issued between October 2005 and December 2006 leaves 158 classes downgraded and affirms/removes 82 Alt-A classes from CreditWatch negative.The rating agency said the move resolves 237 outstanding CreditWatch actions in this portion of the market and also includes downgrades on three classes from Bear Stearns Alt A Trust 2005-10 that were not previously on CreditWatch. S&P can be found on the Web at http://www.standardandpoors.com.

KKR Financial Holdings LLC has agreed to sell 16 million of its common shares to seven unaffiliated institutional investors in separately negotiated transactions and its board of directors has approved a public rights offering of up to $270.0 million to its common shareholders.The investors in the 16 million shares are certain funds managed by Farallon Capital Management, L.L.C., Fir Tree Partners, JGE Capital Management, Marsico Capital Management, Morgan Stanley, Oak Hill Advisors, and Sageview Capital LP, according to the company. The proceeds from the 16 million shares total $230.4 million, KKR Financial Holdings said. The publicly traded affiliate of buyout firm Kohlberg, Kravitz, Roberts & Co. had previously said after suffering damage from the market's credit crunch that it no longer intends to invest in residential home loan assets and would dispose of its portfolio either through runoff or through a "strategic alternative," which may include a sale of the common stock of its real estate investment trust subsidiary. KKR can be found online at http://www.kkrfinancial.com.

Luminent Mortgage Capital, a San Francisco-based real estate investment trust that has been having liquidity problems, has penned a letter of intent to sell warrants equal to a 49% voting equity stake and 51% economic interest to Arco Capital Corp., San Juan, P.R.Arco also arranged for the repurchase of $65 million in mortgage securities portfolios. The warrants have an exercise price of $0.18 per share. Luminent's board of directors audit committee has decided not to seek its shareholder approval for the issuance of the warrants. The company said seeking such approval could seriously further jeopardize the financial viability of Luminent. "The board believes that even with the possibility of sizeable dilution to existing Luminent stockholders, the transactions proposed by the letter of intent with Arco create the best path both to attempt to protect current value and grow potential value going forward," said Trez Moore, Luminent chief executive.

Thornburg Mortgage Inc. has sold $20.4 billon or 35.5% of its portfolio of highly rated jumbo mortgage securities at a loss in an effort to ride out the market's liquidity squeeze and resume lending again.The publicly traded real estate investment trust will realize a $930 million loss as a result of the mortgage sales that involved assets with the lowest yields that were trading at negative spreads. It was "painful," Thornburg president and chief operating officer Larry Goldstone said during an interview on TV-CNBC. "But essentially, we just solved the repricing risk of our portfolio over the course of the last week." The sales helped the Santa Fe, NM, mortgage REIT raise cash and reduce its funding needs. Now it is planning to reopen its loan lock desk and resume normal lending operations over the next two weeks. "Going forward, we can be somewhat optimistic," Mr. Goldstone said.

House Financial Services Committee chairman Barney Frank, D-Mass., has scheduled a Sept. 5 hearing on the crisis in the mortgage and credit markets and the implications for consumers and the economy.Top Treasury Department and Federal Reserve Board officials are scheduled to testify first. Mortgage banking industry and other market participants will testify on a second panel. The committee did not release a witness list in announcing the hearing.

Originator Amstar Mortgage Corp., Houston, has laid off most of the staff at its corporate headquarters and its parent company said it will eventually divest the company to concentrate on more profitable ventures.In a statement, the company blamed large lenders that owe Amstar Mortgage substantial money but are now in or will need to seek bankruptcy protection. The statement also said Amstar is speaking with an unnamed company about managing its branches so service can be maintained. Amstar Mortgage has 116 branches, was licensed in 31 states and originated over $1 billion in loans a year.

Moody's Investors Service has announced downgrades on 691 vintage 2006 securities (with original face value of $19.4 billion) backed by subprime closed-end second lien mortgage loans.Moody's said the Aug. 16 rating actions affect securities representing 76% of the dollar volume and 84% of the securities rated by Moody's in 2006 that were backed by subprime closed-end second-lien loans. An additional 14 classes were placed on review for possible downgrade. "The actions reflect the extremely poor performance of closed-end second-lien subprime mortgage loans securitized in 2006," the rating agency said. "These loans are defaulting at a rate materially higher than original expectations. Aggressive underwriting combined with prolonged, slowing home price appreciation has caused significant loan performance deterioration and is the primary factor in the negative rating actions."