Servicing

Thrift institutions posted record profits in the second quarter as single-family originations jumped 20% from those of the prior quarter to $169.4 billion, according to the Office of Thrift Supervision.Lower mortgage rates increased loan demand, the OTS said. However, the percentage of adjustable-rate mortgages fell to 42% of loan production from 50% in the first quarter. And refinancings declined to 30% of loan production from 37% in the prior quarter. The OTS said its examiners are closely monitoring newer types of loans, such as interest-only ARMs, as well as home equity lines of credit. But troubled loans at thrifts are at a record low. Meanwhile, thrifts reported record earnings for the third consecutive quarter even though the value of mortgage servicing assets declined by $112.6 million in the second quarter. Earnings totaled $4.03 billion, up 1% from those of the first quarter and up 20% from those of the second quarter of 2004.

Four classes of Origen Financial Inc. manufactured housing contracts, series 2001-A, have been downgraded by Fitch Ratings.The downgrades were as follows: class A-5, from AA to A-plus; classes A-6 and A-7, from A to BBB-minus; and class M-1, from BB to CCC. Fitch also affirmed the rating on one other class in the deal. "Credit enhancement has continued to decline due to an elevated rate of defaulted loans," the rating agency said in explaining the actions. "Cumulative losses of over 18% of the original collateral balance have caused writedowns of the subordinate classes and have increased the credit risk to the senior classes." Origen is a real estate investment trust based in Southfield, Mich.

Five classes from two Merit Securities Corp. manufactured housing contract transactions have been downgraded by Fitch Ratings.The downgrades were as follows: series 12-1, class M-1, from A to BBB-minus, class M-2, from BB-minus to B, and class B-1, from CCC to CC; and series 13, class M-1, from BBB-minus to BB-minus, and class M-2, from B to B-minus. Fitch also affirmed the ratings on three other classes from the two deals. The rating agency said the downgrades reflect the poor performance of the collateral pool. The deals, both issued in 1999, include loans that were called from previous transactions. Fitch can be found online at http://www.fitchratings.com.

Class B of First Union HEL mortgage pass-through certificates, series 1997-3, has been downgraded from BB to B by Fitch Ratings.The downgrade reflects the fact that poor collateral performance has reduced credit enhancement in the form of overcollateralization, the rating agency said. The transaction consists of 15-year fixed-rate mortgages extended to subprime borrowers. "Over the last six months, the monthly average in realized losses (after the application of excess interest) is approximately $75,000," Fitch said. "The high percentage of loans more than 60 days delinquent (approximately 25% of the current pool) suggests continued poor performance." The rating agency can be found on the Web at http://www.fitchratings.com.

Class DB-4 of PNC Mortgage Securities Corp. series 1999-10 has been downgraded from B to B-minus by Fitch Ratings.In addition, the rating agency upgraded one class from the deal and affirmed the ratings on three other classes. The downgrade was attributed to an increasing threat of high delinquencies in relation to declining credit support provided by class DB-5 as a result of cumulative losses. Fitch can be found on the Web at http://www.fitchratings.com.

Foreclosure rates in the Chicago metropolitan area were down significantly in the second quarter compared with those recorded late in 2004, according to Foreclosures.com, an online seller of foreclosed property.Foreclosures.com also said mortgage fraud continues to be a problem in the Windy City. "At the end of last year, we were seeing about 1,700-1,900 new [foreclosure] cases per month filed in Cook County," said Alexis McGee, president of Foreclosures.com. "Now we're down to a little over 1,300 per month." She added that the Chicago housing market is still strong, but that inventories of unsold homes are beginning to rise, suggesting a cooling market. Regarding mortgage fraud, Ms. McGee said it is clouding the foreclosure picture. "There are signs that organized crime is getting into that scam," she said, citing a report by the Chicago police superintendent. The Fair Oaks, Calif.-based company can be found online at http://www.foreclosures.com.

Credit Suisse First Boston, New York, has agreed to buy 100% of the outstanding stock of SPS Holding Co. and its subsidiary, Select Portfolio Servicing, for $144.4 million.SPS, a major servicer of nonprime mortgage loans, is being acquired from the PMI Group, FSA Portfolio Management, and Greenrange Partners. Under the agreement, CSFB will make future contingency payments of up to $39.9 million for mortgage loans currently serviced by SPS on behalf of third parties. The transaction is expected to close in the fourth quarter. SPS services collateral underwritten by CSFB, and CSFB said it plans to integrate SPS into its mortgage securities business. SPS was formerly known as Fairbanks Capital Corp.

Friedman, Billings, Ramsey & Co., Arlington, Va., believes that the number of cities facing home price bubbles increased 55% in the first quarter compared to research it conducted last year.In a just released, updated report on housing bubbles, FBR says 42 cities (urban areas or "UAs") are at risk compared to 27 identified in an earlier report. FBR economist Michael D. Youngblood says the UAs are overpriced based on per capita personal income compared to the median home price. Nine of the top 10 UAs most likely to burst are in California and 27 of California's 28 UAs have home prices that are bubbles waiting to burst. However, Mr. Youngblood cautions that he does not expect the bubbles to burst in any UA until economic activity contracts for a minimum of four quarters. Mortgage lenders have been criticized for fueling high prices by offering interest-only and payment option loans that allow consumers to make low monthly payments at the expense of building equity.

If home price appreciation slows -- as many economists believe it will -- subprime credit borrowers could be hurt the most.According to John Silvia, chief economist for Wachovia Corp., $550 billion worth of B&C credit debt (about half the market) is expected to "reset" by the end of next year. "The challenge in housing will come in 2006," he predicted during an economic panel on housing prices Tuesday. "The lower income borrower[s] -- will they be able to reset?" he questioned. (Reset is in reference to adjustable-rate loans that are set to reprice over the next 18 months.) Economists speaking on the panel cautioned that consumers who, over the past few years, barely qualified for mortgage credit will be hurt the most because they have been using their homes like piggy banks. The concern is that if appreciation slows, the marginal borrower will have no equity to tap. Dean Baker, an economist for the Center for Economic Policy and Research, predicted that the housing bubble would only end once conventional rates reach 7%. He said once that happens, home prices on average could fall by 20%.

A total of 90,590 foreclosed residential properties were available for sale in the U.S. during July, according to online listing service Foreclosure.com.The total represents a 4.6% increase from June, according to the online service. Foreclosure.com added 12,009 properties to its database in July. These additional properties were not included in the June comparison percentage, the company said.