Servicing

In the wake of hurricanes Katrina and Rita, massive property damage and high unemployment rates pushed default rates on subprime mortgages up to 32.6% in Louisiana and 29.9% in Mississippi as of Dec. 30, according to Friedman Billings Ramsey.But the bad news is not over, according to the investment banking firm. FBR said it expects conditions to get worse as this year progresses, with subprime defaults (90 days or more past due) in New Orleans rising from 47.8% to 61.3% by the end of the year, and defaults in Biloxi, Miss., rising from 35.4% to 66.4% by year-end. Nationwide, the default rate on subprime mortgages was 7.07% at the end of 2005. The FBR research report on the performance of residential asset-backed securities also shows that defaults on nonagency prime loans had climbed to 13.20% in Louisiana and to 6.02% in Mississippi as of Dec. 30. Hibernia National Bank, a Fannie Mae/Freddie Mac prime lender based in Baton Rouge, La., reported that its default rate was 6.72% as of Dec. 30, up from 0.33% at year-end 2004, according to the Quarterly Data Report, a MortgageWire affiliate.

Freedom Title Corp., Chicago, has announced that 1031 exchange services will now be offered to its agents through an alliance with Nationwide Exchange Services.Freedom Title said NES is a "qualified intermediary" that provides a full range of 1031 tax-deferred exchange services. Section 1031 of the IRS Code allows owners to exchange property held for investment or business purposes for "like-kind" property, with no federal tax liability, if they meet certain deadlines. The companies can be found online at http://www.freedomtitle.com and http://www.nationwide1031.com.

Genworth Financial, Richmond, Va., has announced the pricing of a General Electric secondary public offering of approximately 71 million shares of Genworth class A common stock at $32.75 per share.Genworth, whose mortgage insurance subsidiary is headquartered in Raleigh, N.C., said it will also repurchase 15 million shares of Genworth's class B common stock directly from GE for $479 million, contingent upon the closing of the secondary offering. After the transactions, GE will not own any shares of Genworth common stock, the company said. The global coordinator and bookrunner for the offering was Merrill Lynch & Co., with Citigroup; Goldman, Sachs & Co; J.P. Morgan; and Morgan Stanley & Co. as bookrunners. Genworth can be found online at http://www.genworth.com.

Two classes of GE Capital home equity loan pass-through certificates, series 1997-HE4, have been downgraded by Fitch Ratings.Class M was downgraded from AA to A, and class B1 was downgraded from CC to C. Fitch also affirmed the ratings on two other classes in the deal. Fitch attributed the downgrades to the deterioration of credit enhancement relative to monthly losses that have risen or held steady. The rating agency can be found online at http://www.fitchratings.com.

Morgan Stanley is recommending to clients that they short the stock of Golden West Financial Corp., Oakland, Calif., one of the nation's largest originators of adjustable-rate mortgagesIn a research note released March 2, analyst Ken Posner suggests that the company is overpriced compared with two of its peers, Countrywide Home Loans, Calabasas, Calif., and IndyMac, Pasadena, Calif. (All three lenders are active ARM funders.) Both Countrywide and IndyMac trade at 1.6 times book value, compared with 2.6 times for Golden West. In addition, the market is valuing GWF's production franchise at twice that of Countrywide's -- $7.7 billion versus $3.8 billion, according to Morgan Stanley research. At midday Thursday, GWF's shares were trading down 47 cents, at $70.40.

Two publicly traded mortgage lenders -- one prime, the other subprime -- are delaying financial disclosures because of valuation and accounting concerns.PHH Corp., Mt. Laurel, N.J., which owns the nation's 10th-largest servicer, said it will not file its annual 10-K statement with the Securities and Exchange Commission on March 16 as originally scheduled. At MortgageWire's deadline on Thursday, PHH's shares were trading down 16%, at $24.17. Fitch Ratings placed the company on Rating Watch Negative. PHH gave several reasons for the holdup, saying it needs more time to document and analyze goodwill, intangibles, and "certain tax assets." Meanwhile, Saxon Mortgage, Glen Allen, Va., a top-40-ranked subprime funder, is delaying is fourth-quarter and full-year results for several weeks as management reviews its application of Statement of Financial Accounting Standards No. 133, accounting for derivatives and hedging.

ECC Capital Corp., Irvine, Calif., saw its share price get clobbered Feb. 27 after the subprime lender revealed that it would not pay a dividend for the first quarter of 2006.The lender blamed the dividend policy on "losses in its mortgage banking segment." The lender's general counsel declined to discuss the matter with MortgageWire. Its shares closed down 28%, to $1.36 a share, on Feb. 27. ECC, a real estate investment trust, trimmed 440 full-timers in early January, about 27% of its work force. ECC, the parent of Encore Credit Corp., went public a year ago. It is scheduled to report fourth-quarter and full-year 2005 earnings by the end of March.

Beverly Hills Bancorp, Calabasas, Calif., has announced that it will restate its 2004 audited financial statements as a result of errors that included the computation of taxable "excess inclusion income" on its interests in real estate mortgage investment conduits.As a result of the REMIC-related error, and an error related to the amount of net operating losses used in computing taxes for 2004 and prior years, the company said it overstated its deferred tax asset, which included future tax benefits associated with its net operating losses. This overstatement had no effect on the company's balance sheet or income until the fourth quarter of 2004 "because the company had established a valuation allowance against this asset," the holding company said. The company can be found online at http://www.bhbc.com.

Doral Financial Corp., San Juan, one of Puerto Rico's major mortgage lenders, has completed the restatement of its financial results, a process that shaved $694.4 million from the company's retained earnings through the end of 2004.In the restatement, Doral reduced earnings by $508.1 million for 2002 through 2004, with the remaining $186.3 million being subtracted from periods prior to 2002. The company now says it earned $214.8 million in 2004. As a result of the restatement, Doral Financial's stockholders' equity and Tier One capital each fell by 35%, the company said. However, Doral said the company "remains well capitalized for bank regulatory purposes." Doral said it has concluded that its internal control over financial reporting "was not effective" as of Dec. 31, 2004, and that it has "identified a number of material weaknesses, including but not limited to an ineffective control environment." Last August, Doral announced the termination of its chief financial officer and the resignation of several senior executives in connection with the restatement. It also named Antonio F. Faria, a former commissioner of financial institutions in Puerto Rico, chief executive officer of its subsidiary Doral Bank.

Fitch Ratings has affirmed the long-term issuer default rating and short-term rating for Astoria Financial Corp. and Astoria Savings and loan.The long-term issuer default rating is BBB-plus, and the short-term rating is F2 with a stable outlook. Fitch said the ratings reflect consistent financial performance despite a challenging operating environment. Astoria continues to originate and hold hybrid, 3/1, and 5/1 adjustable-rate mortgages, as well as multifamily mortgages, to offset margin pressure from rising short term interest rates, Fitch said.