Servicing

Wells Fargo & Co. earned a record $1.8 billion ($1.04 per share) in the fourth quarter, up 10% from its earnings in the fourth quarter of 2003.But the mortgage unit saw its contribution to earnings decline from the record-setting 2003 performance, with Wells Fargo reporting origination volume of $87.7 billion in first mortgages and $52.2 billion in second mortgages during the quarter. For the full year, Wells Fargo originated $298 billion of residential mortgages, down 37% from the industry record of $470 billion the company set in 2003. The Wells Fargo owned mortgage servicing portfolio reached $805 billion, up 13% from that of 2003, the company said. Wells Fargo said the carrying value of its mortgage servicing rights totaled $7.9 billion at year-end, or 1.15% of loans serviced. That is up from an MSR valuation of $6.9 billion at the end of 2003. The company can be found on the Internet at www.wellsfargo.com.

Ten classes of mezzanine and subordinated tranches from four mortgage-backed securitizations issued by Credit Suisse First Boston Mortgage Securities Corp. have been placed under review for possible downgrade by Moody's Investors Service.The affected securities are as follows: series 2001-11, class III-M; series 2001-AR19, classes C-B-2 and C-B-3; series 2001-28, classes I-B-1 through I-B-5; and series 2002-22, classes II-B-1 and II-B-2. In addition, Moody's has placed 23 classes from seven MBS deals under review for possible upgrade. Moody's attributed the negative rating actions to cumulative losses on the underlying loans that have exceeded the rating agency's original expectations. Moody's can be found online at http://www.moodys.com.

Class BV of IndyMac ABS Inc. Home Equity series SPMD 2000-C, group 2, has been downgraded from B to CCC by Fitch Ratings.In addition, Fitch affirmed the ratings on three other classes in the transaction. The negative rating action was attributed to poor collateral performance and "the deterioration of asset quality beyond original expectations." Series SPMD 2000-C, group 2, originally contained 9.51% in manufactured housing collateral, and the percentage had increased to 25.3% as of December 2004. "To date, the MH loans have exhibited very high loss severities, causing Fitch to have concerns regarding the adequacy of enhancement in this deal," the rating agency said. MH collateral has been responsible for 55% of cumulative losses. Fitch can be found online at http://www.fitchratings.com.

In what may be a harbinger for other banks, BB&T Corp. has reported a net recapture of valuation for its mortgage servicing rights in the fourth quarter totaling $4 million.BB&T, one of the first banks to report fourth-quarter earnings, said the recapture was lower than the $20.1 million recorded in the fourth quarter of last year. Revenue from mortgage banking activity totaled $26.9 million in the fourth quarter, down $14 million from that of a year earlier, and the bank cited fluctuation in the valuation of its MSRs as the primary reason for the decrease. Overall, BB&T reported net income of $416.9 million in the fourth quarter, or $0.75 per share, compared with $305 million, or $0.55 per share, a year earlier.

Jackson & Associates, an Irvine, Calif.-based provider of legal services and legal process management to the real-estate owned industry, has launched a new platform for managing recovery of occupied REO.The company said its platform, Symphony, is a specialized system designed to control the risk associated with occupied REO, and manages the legal and related processes involved in post-foreclosure property recovery. "The risks incident to the recovery of occupied REO are quite different from vacant REO, both in terms of the frequency and severity of risk exposure," said Robert Jackson, president and senior managing attorney at the firm.

Transnational Financial Network Inc., a wholesale and retail mortgage bank based in San Francisco, has announced the closing of a private placement of approximately $2.69 million of 8.5% convertible subordinated debt.Transnational said the 10-year debt is redeemable in whole or in part by the company at 120% of the principal amount for 18 months from the date of issue, at 115% during months 19 to 24, and at 110% thereafter. The proceeds will be used as collateral to expand Transnational's warehouse facilities to finance the closing of bulk home equity lines and "position the company to achieve as much as 300 basis points gain on sale on production through the use of bulk sale contracts for a portion of the mortgages it originates," the company said. Transactional can be found on the Internet at http://www.transnational.com.

Congress has eliminated refunds of upfront mortgage insurance premiums on Federal Housing Administration loans endorsed on or after Dec. 8, except for FHA streamline refinancings.The omnibus appropriations bill the president signed Dec. 8 eliminated FHA refunds except when the borrower refinances into an FHA loan within three years. Previously, FHA borrowers could get a refund for up to five years. FHA borrowers who refinance into a conventional loan are not entitled to any refund of the 1.5% upfront MI premium. The Department of Housing and Urban Development has issued a mortgagee letter notifying lenders about the changes, along with an updated disclosure and refund schedule for homebuyers. Without a refund, borrowers are going to have to consider the upfront premium a permanent expense and make FHA loans less competitive with low-downpayment conventional loans, particularly alternative-A loans, according to Washington consultant Brian Chappelle. "This is not the news that the FHA program needs," Mr. Chappelle said.

One class of notes issued by Orchard Park CDO Ltd., a collateralized debt obligation partly composed of residential and commercial mortgage-backed securities, has been downgraded by Fitch Ratings.The downgrade was as follows: class A-2, from AAA to AA-plus. In addition, the ratings on two other classes were affirmed. Fitch said the deal is failing its interest coverage test: its IC ratio of 98.1% falls short of the trigger of 101.5%. The transaction has also been hurt by a "misalignment in the interest rate hedge" that has left it overhedged by approximately $7.7 million, according to Fitch. In addition to RMBS and CMBS, the transaction consists of asset-backed securities and other CDOs, the rating agency said.

LoanPerformance, San Francisco, and Intelligent Results, Bellevue, Wash., have announced the introduction of ScoreText, a predictive modeling system the companies say has wide application for mortgage servicers.ScoreText integrates structured data with unstructured text data, enabling servicers to better understand and predict customer behavior in servicing and collection efforts, they said. "Today's best predictive models only incorporate about 20% of the available data," said Richard Harmon, senior vice president for scoring and analytics at LoanPerformance. "By exploiting the available unstructured data that makes up the other 80%, mortgage servicers can not only improve their ability to predict customer behavior, but can have a much better understanding of the key factors differentiating behavior." The companies can be found on the Web at http://www.loanperformance.com and http://www.intelligentresults.com.

The hot interest-only residential loan market could be headed for a fall.According to Freddie Mac's chief economist Frank Nothaft, interest-only loans -- which are widely popular in expensive housing markets -- carry potential credit problems because "no equity is being built up." Speaking at a Freddie Mac forecast conference, Mr. Nothaft said the mortgages carry "potential credit problems." However, he noted that Freddie Mac, as well as other organizations, have no hard data on IO loan volumes. (National Mortgage News is surveying lenders on this data point.) Freddie Mac places IO loans in the adjustable-rate category. In the fourth quarter, ARMs accounted for 33% of all loan production, according to the government-sponsored enterprise. Freddie estimates that all lenders funded $545 billion in residential loans in the fourth quarter, the worst quarterly performance of the year. (See the Jan. 17 issue of NMN for the full story.)