Servicing

Hurricane Katrina may turn out to be the largest insured loss in U.S. history, surpassing 9/11 and Hurricane Andrew, according to Fitch Ratings.While cautioning that it will be "a long time" before insured loss estimates can be made with any certainty, the rating agency said it now expects insured losses to be closer to the high end than the low end of published estimates, which have ranged from $9 billion to $25 billion. Insured losses totaled $20.1 billion from the Sept. 11, 2001, terrorist attacks and $20.5 billion from Hurricane Andrew, Fitch said. Among the factors cited by Fitch in support of its belief that insured losses may be the highest ever are: the consequences of the levee breach in New Orleans; widespread business interruption losses that are now expected; looting-related losses; and potential environmental liabilities. The rating agency said it does not expect insolvencies among larger insurers, but that some "could face downgrades." Fitch can be found online at http://www.fitchratings.com.

Mortgage companies continued to add new full-time employees to their payrolls in July, bringing the total of new hires over the past 12 months to 45,100.Lenders hired 4,800 new employees in July, according to the August employment report released by the U.S. Bureau of Labor Statistics, as jobs in the mortgage banking/broker sector rose from 517,100 in June to 521,900 in July. (There is a one-month lag in BLS reporting of mortgage sector employment data. The August data will be released Oct. 7.) Employment has been steadily rising over the past 12 months, and record home sales, along with a high level of refinancings, could make 2005 the second-best year ever for originations. Jay Brinkmann, financial economist for the Mortgager Bankers Association, pointed out that purchase-mortgage transactions are more labor intensive than refinancings, placing more demands on loan officers and back-office personnel. He also noted that heavy subprime volumes could be prompting more hires. Meanwhile, the U.S. economy generated 169,000 new jobs in August and the unemployment rate edged down to 4.9% from 5.0% in July. BLS economists also revised the July jobs number upward from 207,000 to 242,000 in the Sept. 2 report. The BLS can be found online at http://stats.bls.gov.

Oklahoma City-based a la mode inc. has announced that it will defer all fees and payments for its thousands of clients in Louisiana, Mississippi, and Alabama who were victims of Hurricane Katrina for as long as necessary.The company, which has numerous clients in the affected areas, also announced that it has matched the August 30th Realtor Relief Foundation donation of $150,000 in cash, to be split equally among the disaster recovery operations of the state Realtor associations in the three states. The foundation was created to provide assistance for housing-related needs of victims of disasters like Katrina. "Katrina has been the worst disaster in history as far as the number of Realtors affected," said Steve Cook, vice president of public affairs at the National Association of Realtors. "Thousands of our members have lost their homes and will have a difficult time getting back on their feet." In addition, a la mode's founder and chairman, Dave Biggers, indicated that he will ask all the company's clients to donate to the American Red Cross through the a la mode website and will personally match the total contribution up to $250,000. Information on the a la mode and NAR hurricane relief efforts can be found online at http://www.alamode.com/katrina and http://www.realtor.org.

Wachovia, with a $132.8 billion portfolio as of June 30, is now the largest primary and master servicer of commercial mortgage-backed securities, according to the Mortgage Bankers Association.GMAC Commercial Holding, with $118.9 billion, is the second-largest CMBS servicer on the MBA's list; Midland Loan Services, with $84.3 billion, is third; and Wells Fargo Commercial Mortgage Servicing, with $52.5 billion, is fourth. LNR Partners ranks as the No. 1 special servicer named on CMBS deals. LNR is named as the special servicer to manage troubled loans on $126 billion of CMBS deals.

Freddie Mac is reminding lenders that it will not tolerate lending practices that reward borrowers for quickly refinancing loans.The secondary-market agency has found that some mortgage brokers and originators promise to cover several monthly mortgage payments if the borrower agrees to take out a high-interest-rate loan and refinance within a few months. Freddie Mac is warning for the second time that such arrangements violate the representations and warranties lenders sign when they sell a loan to Freddie. And Freddie Mac could require repurchase of such loans or take other actions against the lender. Freddie previously raised objections to these practices in an April news release. Now the agency has issued an industry letter to underscore its concerns. "We expect seller/servicers to monitor prepayment levels of the mortgages they have sold to Freddie Mac, and to notify their Freddie Mac account manager if they become aware of circumstances likely to result in unusually high prepayment rates of these mortgages," the Sept. 1 industry letter says.

Freddie Mac expects to see price declines in some hot housing markets and is limiting purchases of interest-only and option adjustable-rate mortgages, according to the company's president and chief executive Richard Syron."Along with many other informed observers, we do anticipate some cooling in the hotter markets," Mr. Syron told investors and Wall Street analysts during an Aug. 31 conference call on the mortgage company's first- and second-quarter financial results. "And indeed, we are prepared to see some retracing in house prices in some of these markets where gains, quite frankly, outpaced the underlying economic drivers." The CEO also said the government-sponsored enterprise is purchasing IOs and option ARMs, but is keeping its credit exposure very low and forfeiting market share. "We understand that we are trading some volume of business today because we chose to avoid unduly compromising our credit and pricing discipline," Mr. Syron said. Such restraint is appropriate for a GSE with a special housing mission, and it is the "right approach" for the company's shareholders, he added.

Freddie Mac -- which is almost current on its earnings releases -- has reported that first-half 2005 profits tumbled by 60% as net interest income fell and the company recorded a massive loss on its derivatives.Freddie released its earnings after the market closed Aug. 31, and in trading Sept. 1 its stock fell more than $2 a share, setting a new 52-week low of $58.05 per share. The government-sponsored enterprise, which earned $1.64 billion in the first half, also reported that guarantee fee and "contractual management" income rose to $720 million (16.4 basis points), compared with $635 million in the first half of 2004. Annualized, its "g-fee" income fell to 15.8 bps, compared with 16.6 bps a year ago. Freddie took a $747 million derivatives loss in the first half, compared with a gain of $521 million in the year-ago period. Sandler O'Neill maintained its "hold" rating on Freddie, saying "we remain cautious until we have increased comfort and visibility in the core earnings power of the company with additional financial disclosures."

ECC Capital Corp., a real estate investment trust based in Irvine, Calif., has announced the completion of a $1.03 billion securitization of subprime mortgage loans.Encore Credit Receivables Trust 2005-3 contains 14 classes of notes, including what the REIT said would be deemed by investors the equivalent of a net-interest-margin security. "With the class N notes, we were able to monetize approximately $34.5 million of residual cash flow at a 5% yield, which is lower than the implied cost of funding those cash flows with our equity," said John Kohler, executive vice president of ECC Capital. "And in a traditional structure, we would not have received residual cash flow until the required overcollateralization was built up." The joint lead managers of the deal were Wachovia Capital Markets LLC and Countrywide Securities Corp., and the co-manager was Credit Suisse First Boston LLC. ECC Capital, a mortgage finance REIT, can be found online at http://www.encorecredit.com.

HomeBanc Corp., the Atlanta-based parent company of HomeBanc Mortgage Corp., has announced the completion of a $1.09 billion securitization of adjustable-rate mortgage loans.The sequential-pay notes were issued by HomeBanc Mortgage Trust 2005-4, which includes approximately $1.12 billion of first- and second-lien ARMs originated by HomeBanc Mortgage. The floating interest rates on the various classes of notes are based on the one-month London interbank offered rate. HomeBanc Corp. said it retained approximately $43.1 million of the notes as well as a certificate representing the right to receive any residual distributions. The underwriters of the deal are Bear, Stearns & Co.; JPMorgan Securities; and KeyBanc Capital Markets. HomeBanc, a real estate investment trust, can be found online at http://www.homebanc.com.

Fitch Ratings has reported that the impact of Hurricane Katrina may adversely affect certain Fitch-rated commercial mortgage-backed securities deals.The rating agency said it has identified 18 transactions with greater than a 5% property concentration in the area, with concentrations ranging as high as 52%. Fitch said it is especially concerned with the following 12 transactions, which provide limited or no credit support to Fitch-rated classes: ASC 1996-MD6, CALFS 1997-CTL1, CSFB 2004-C2, EPT 2003-EPR, GECMC 2000-1, GMACC 2001-C1, MSCI 2005-XLF, NLFC 1998-1, RMF 1997-1, SLCMT 1997-C1, TIAA 1999-1, and WBCMT 2004-WHL3. Since CMBS borrowers are required to carry property insurance in the United States, Fitch said it expects "minimal losses" because repair costs will ultimately be covered. The rating agency said it has contacted the master servicers of the affected transactions and expects to begin receiving property status reports in the next two weeks. Fitch can be found online at http://www.fitchratings.com.