Servicing

Freddie Mac has reduced its profits for the first half of 2005 by $220 million, lowering reported net income to $1.4 billion from the $1.6 billion previously reported in the company's Aug. 31 financial release.Freddie Mac said the mistake, stemming from miscalculations since 2001 in a legacy computer system, caused interest income on certain mortgage securities to be accrued too early. The government-sponsored enterprise said management found and corrected the error in the course of internal control enhancements. Freddie Mac noted that the amount of the income reduction represents less than 1% of its $36.1 billion of reported regulatory core capital. Martin Baumann, Freddie Mac's chief financial officer, said Freddie continues to make progress in fixing its financial problems. "When we found this error, we corrected it immediately," he said. "We are continuing to move forward to complete the job of producing timely, accurate financial reports early in 2006." Freddie Mac can be found online at http://www.freddiemac.com.

Five classes from three Metropolitan Mortgage & Securities Co. Inc. securitizations have been downgraded by Fitch Ratings.The downgrades were as follows: series 1998-B, class B-1, from B-minus to CCC; series 2000-A, class M-1, from AA to A, and class M-2, from CCC to C; and series 2000-B, class M-2, from A to BBB, and class B-1, from CCC to C. In addition, Fitch upgraded 15 classes and affirmed the ratings on 15 others from eight Metro Mortgage issues. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations. The transactions "have failed their cumulative loss triggers, which has prevented the trusts from paying principal to the subordinate bonds," the rating agency said. The collateral for the deals consists chiefly of fixed- and adjustable-rate mortgage loans secured by first liens on residential properties or commercial real estate. The majority of the mortgage loans were originated or acquired by Metropolitan Mortgage, which filed for Chapter 11 bankruptcy protection in February 2004.

Irwin Financial Corp., a mortgage banker and home equity lender based in Columbus, Ind., has announced that it will correct its accounting treatment of incentive servicing fees, which will henceforth be regarded as servicing assets rather than derivative instruments.Irwin said that, under its ISF contracts, it receives cash payments from buyers of certain home equity loans if its servicing of the sold loans meets specific performance targets. The company has been accounting for ISFs as derivative instruments under Statement of Financial Accounting Standards No. 133. "However, upon further consideration of the nature of incentive servicing fees and additional interpretive input, the corporation believes ISFs should be treated as servicing assets under SFAS 140," Irwin said. The company can be found online at http://www.irwinfinancial.com.

PHH Mortgage, Mt. Laurel, N.J., has announced the purchase of the mortgage assets of CUNA Mutual Mortgage Corp., increasing PHH Mortgage's credit union servicing portfolio to approximately $16 billion.The financial terms of the transaction were not disclosed. Under the agreement, PHH Mortgage acquired certain mortgage-related assets and assumed origination, servicing, and subservicing contracts, the company reported. The majority of CUNA Mutual's originations come from wholesale and correspondent channels, and its servicing portfolio for credit unions totaled approximately $10 billion, PHH Mortgage said. The company said it was chosen by CUNA Mutual because its private-label business model enables CUs to customize mortgage products and services at competitive rates. "PHH Mortgage is able to say to all credit unions that we do not cross-sell any products and services that may compete with a credit union's product menu," said Terry Edwards, president and chief executive officer of PHH Mortgage. The company, a subsidiary of PHH Corp., can be found on the Web at http://www.phh.com.

Two subordinated tranches from two mortgage-backed securitizations issued by Credit Suisse First Boston Mortgage Securities Corp. in 2001 and 2002 have been placed under review for possible downgrade by Moody's Investors Service.The affected securities are class B-3 of series 2001-2 and class VII-M-2 of series 2002-AR31. The actions were based on the fact that the bonds' credit enhancement levels "may be low" in view of projected losses for the current rating level, Fitch said.

Three tranches of Solstice ABS CDO Ltd. have been downgraded by Fitch Ratings.The downgrades in the collateralized debt obligation were as follows: class B notes, from AA-minus to BB-plus; class C notes, from BBB to CC; and preference shares, from B to C. Fitch said the downgrades stemmed from "continued collateral deterioration leading to a decline in the coverage ratios." The percentage of collateral rated CCC-plus and below has increased from 9% to 24% since Aug. 31, 2004, Fitch said. Solstice consists of 40.6% residential mortgage-backed securities, 36.0% CDOs, 12.3% asset-backed securities, 5.5% corporate debt securities, 3.8% commercial MBS, and 1.8% real estate investment trusts. Fitch can be found online at http://www.fitchratings.com.

Freddie Mac has set Dec. 1 as the date on which it will make new loan-level disclosures available for its newly issued single-family fixed- and adjustable-rate mortgage Participation Certificate securities.The government-sponsored enterprise added that "shortly thereafter" it plans to disclose "certain algorithms and business rules used to produce loan-level information for each pool in addition to those used to derive pool-level disclosures." Market participants will be able to download the new loan-level detail for each new PC online at http://www.freddiemac.com/mbs.

Even though the mortgage industry is seeing signs of declining production, employment in the sector surged to a new high in September, according to government figures released Nov. 4.Mortgage banking and brokerage firms employed 529,300 full-timers at the end of September -- a 10% gain compared with the total recorded in the same month last year and a 0.68% increase from the total in August. The Department of Labor says the "real estate credit" industry (mortgage bankers) employed 392,900 workers at September's end while mortgage and "nonmortgage" loan brokers employed 136,400. (Some nonmortgage jobs are probably represented in the numbers.) Mortgage rates have been rising over the past month. As MortgageWire neared its deadline, the yield on the 10-year Treasury note stood at 4.66%.

Mortgage lender Doral Financial Corp., San Juan, Puerto Rico, has reported total loan production of $1.40 billion for the third quarter, up from $1.35 billion a year earlier, and reiterated that it does not expect to meet its previous target of Nov. 10 for filing restated annual and quarterly reports.The delay in filing its amended 2004 annual report and quarterly reports for the first two quarters of this year is "primarily attributable" to new information on Doral's mortgage loan sales to local financial institutions that could affect the accounting treatment of the transactions as sales under Statement of Financial Accounting Standards 140, the company said. Doral also reported that it has been notified by The Nasdaq Stock Market that its three series of preferred stock will be delisted as of Nov. 3. The company said it plans to seek a relisting or alternative listing of the shares. Doral is the largest residential mortgage lender in Puerto Rico.

The National Home Equity Mortgage Association has announced that it is lending support to the effort by the National Association of Mortgage Brokers to provide relief for mortgage professionals whose businesses and homes were ravaged by Hurricane Katrina.NHEMA said it is encouraging its members to contribute to the NAMB Hurricane Relief Fund. The association said its support is "part of an unprecedented effort by nonprime mortgage lenders, brokers, and the entire mortgage industry to help Katrina victims." NHEMA can be found on the Web at http://www.nhema.org.