Servicing

The Federal Home Loan Bank of Chicago earned $197.5 million in net income for the first three quarters of this year, down 34% from that of the same period in 2004, according to an application filed by the Chicago bank to register its stock with the Securities and Exchange Commission.The Chicago FHLBank, which continues to operate under a supervisory agreement, blamed the decline in earnings "primarily" on the increase in short-term interest rates this year, along with declines in its advance and mortgage purchase business. The Boston, New York, and San Francisco FHLBanks have registered their stock with the SEC, and the Cincinnati FHLBank recently filed an application to register. "This is an important step in the completion of the registration process," said Mike Thomas, president and chief executive of the Chicago bank. The $83 billion Chicago FHLBank held $43.4 billion in Mortgage Partnership Finance loans as of Sept. 30, and approximately $500 million of the conventional MPF loans are located in the Gulf Coast states hit by hurricanes Katrina and Rita. The Chicago bank said it does not believe its losses will be material, but it is still working with a master servicer and the originating institutions to develop a loss estimate.

Arbor Realty Trust Inc., a real estate investment trust based in Uniondale, N.Y., has announced the completion of the sale of $50 million of trust preferred securities in a private placement.The trust said it will use the proceeds to repay short-term debt and provide capital to fund loan originations. The trust preferred securities have an approximately 30-year term and bear interest at a floating-rate of 2.75% above the three-month London interbank offered rate. Arbor, which specializes in real-estate-related bridge and mezzanine loans, can be found online at http://www.thearbornet.com.

Scratch-and-dent transactions, which are becoming more commonplace in the U.S. residential mortgage-backed securities arena, have generally performed up to expectations, according to Fitch Ratings.In a special report titled "Scratch & Dent: This Is Not Your Father's MBS," the rating agency reports that it has analyzed 36 transactions from 15 issuers in the first three quarters of 2005, totaling almost $7 billion (a 436% increase from the level recorded two years ago). "Scratch-and-dent transactions have generally performed at expectations, due in part to RMBS servicers' workout and liquidation procedures, as they directly affect loan recoveries," said Vincent Barberio, a Fitch managing director. "Subprime and special servicers are generally best-suited to service pools of distressed loans because they typically deal with a greater number of poorly performing loans and have adequate tools in place to handle them." The combinations of collateral any one scratch-and-dent pool can contain make it hard to compare such deals, and therefore it is important to analyze each transaction individually, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

First BanCorp, the parent company of FirstBank Puerto Rico, San Juan, has announced that it will restate its earnings from 2001 through the first quarter of this year because certain of its mortgage-related transactions do not qualify as sales for accounting purposes.The company said a "substantial portion" of its mortgage-related transactions with Doral Financial Corp. and R&G Financial Corp. since 1999 do not so qualify. The restatements will also correct the accounting treatment of certain interest rate swaps, First BanCorp said. The Doral and R&G transactions in question were accounted for as purchases of residential real estate loans and commercial mortgage loans. The restatement will reflect the transactions as commercial loans secured by mortgages, the company said. The revised classification will not result in a need for additional reserves, but it has led the company to terminate its commitments to purchase mortgage loan portfolios from Doral, First BanCorp said. The company can be found online at http://www.firstbankpr.com.

The overall delinquency rate rose modestly during the third quarter, and the Mortgage Bankers Association says Hurricane Katrina is to blame.As of Sept. 30, 4.44% of residential home loans were delinquent, according to the MBA's quarterly delinquency survey. That was up 10 basis points from the level of June 30, but it was down by the same amount from that of one year earlier. However, the MBA said the increase in the third quarter reflects higher delinquencies in Mississippi (where the delinquency rate rose to 17.44% in the third quarter) and Louisiana (where it rose to 24.63%) stemming from widespread property destruction and damage from the hurricane. Excluding the impact of the hurricane, delinquency rates for all loan types were lower. In fact, excluding the hurricane effect reduces the overall delinquency rate by 13 bps, according to the MBA. The foreclosure rate also declined nationwide in the third quarter.

The Federal Home Loan Bank of Seattle, which has been burned by its Mortgage Purchase Program, posted a $15.7 million loss in the second quarter but is forecasting better days ahead.The government-sponsored enterprise blamed the loss on "mismatches in the cash flows of the bank's assets and liabilities" and costs associated with its downsizing. In the second quarter of last year, the FHLBank earned $25.5 million. It said it hopes to release third-quarter earnings in the "near future." Under new management, the bank is focusing on its advance business and reducing its MPP portfolio. In May, it indicated that it might lose money over the next three years. But in a statement issued Dec. 13, the Seattle FHLBank said it might break even or earn "minimal net income" this year and increase earnings in 2006 and 2007. The bank can be found online at http://www.fhlbsea.com.

Class M-3 of NovaStar Mortgage Funding Trust series 2001-1 has been placed under review for possible downgrade by Moody's Investors Service.Moody's also placed six classes from three NovaStar deals under review for possible upgrade. The negative watchlist placement was attributed to low credit enhancement levels given the projected losses on the underlying pools. "The transaction has taken losses, and pipeline loss could cause eventual erosion of the overcollateralization," the rating agency said. The transactions consist of subprime first-lien adjustable- and fixed-rate loans originated and serviced by NovaStar Mortgage Inc.

First Commonwealth Financial Corp., Indiana, Pa., has announced a repositioning of the mortgage-backed securities portfolio of its subsidiary First Commonwealth Bank to reduce its exposure to interest rate risk.The bank sold $130.7 million of MBS with high premium carrying values, resulting in an after-tax loss of $3.6 million, First Commonwealth said. The average yield of the sold securities was 3.38%, and the average life was approximately 2.9 years. "The proceeds were reinvested in more current coupon mortgage-backed securities with an average yield of 5.3% and an average life of 3.7 years," the company said. First Commonwealth also reported the completion of a previously announced sale of five branch offices and one drive-through location to Clearfield Bank and Trust Co.

Most delinquent borrowers in a recent survey said they didn't respond to servicers' phone calls because they were unaware that their late payments can be rescheduled to help overcome short-term financial difficulties, according to Freddie Mac.The survey, commissioned by Freddie Mac and conducted by Roper Public Affairs, found that 75% of respondents remembered that a servicer called. However, 28% didn't respond because they didn't think it would help them, 17% thought they could manage on their own, and 7% said they didn't have the money to make a payment, Freddie Mac reported. Delinquent borrowers also cited fear, embarrassment, and not knowing whom to call. In addition, 61% of the borrowers were not aware that workout options, such as forbearance and loan modifications, are available if they contact their servicer. The data show that there is a "knowledge gap," Roper vice president Elizabeth Armet said. "People's interest in options available is quite high, but their awareness of these options is quite low." Freddie Mac can be found online at http://www.freddiemac.com.

NVR Inc., a homebuilder and mortgage banker based in Reston, Va., has announced an increase in its revolving credit facility from $150 million to $400 million.The facility matures in December 2010. Thirteen banks are participants in the facility, including JPMorgan Chase Bank NA as administrative agent and U.S. Bank NA as syndication agent. NVR can be found on the Web at http://www.nvrinc.com.