Servicing

Wilshire Financial Services Group, Beaverton, Ore., has signed an agreement to sell its mortgage servicing subsidiary to Merrill Lynch Mortgage Capital.Wilshire Financial said it will receive a cash purchase price of about $52 million for Wilshire Credit Corp., the company's nonprime credit quality servicing specialist. The purchase price is subject to adjustment based on the net asset value reflected on Wilshire's closing-day balance sheet. Jay Memmott, president and chief executive officer of Wilshire Credit, will continue in his position once the deal is closed. The company will continue to operate from its Beaverton location. Wilshire Financial can be found on the Web at http://www.wfsg.com.

Fannie Mae reported net income of about $7.90 billion for 2003, up 71.1% from that of the year previous. Diluted earnings per share were up 75%, to $7.91.However, Fannie Mae prefers to measure its "core business earnings," which differ from the net income measure prescribed under generally accepted accounting principles. Core earnings were up 14.3% to approximately $7.31 billion for the year and up 5.9% to $1.77 billion for the fourth quarter. Core earnings per share were up 15.7%, at $7.29 per share, for the year and up 6.6% to $1.66 for the quarter. Net interest income for the year totaled about $13.57 billion, up 28.4%, and guaranty fee income totaled approximately $2.41 billion, up 32.7%, Fannie Mae reported. Meanwhile, credit-related expenses rose to $111.6 million from $91.7 million in 2003, and the government-sponsored enterprise reported losses of about $2.26 billion from the call and repurchase of debt, compared with $710.5 million in 2002. Chairman and chief executive officer Franklin Raines touted the results. "Fannie Mae delivered outstanding business results in 2003, capitalizing on opportunities and meeting significant challenges posed by a year of historic refinance and purchase volumes and volatility in our market," he said. Fannie Mae can be found online at http://www.fanniemae.com

Washington Mutual has reported earnings of $3.88 billion ($4.21 per share) for 2003, up from $3.86 billion ($4.02 per share) the year before.Home loan volume set a record of $384.18 billion for the year, up from $279.45 billion in 2002. However, fourth-quarter volume dropped $42.28 billion, falling from $99.81 billion in the fourth quarter of 2002 to $57.53 billion, the company said. Earnings fell in the fourth quarter, totaling $842 million ($0.93 per share), compared with $941 million ($1.00 per share) a year earlier. "Even though the market remains predominantly a fixed-rate market, the company is beginning to see a shift toward adjustable-rate mortgages," WaMu said. ARMs represented 55% of WaMu's home loan application volume in the fourth quarter, compared with 38% in the third quarter, the company said.

Washington Mutual Inc., Seattle, eliminated the equivalent of 4,500 jobs from its home loans group in the fourth quarter, and more cuts are on the way, a company executive said on a conference call to discuss fourth-quarter results (see item below).Chief administrative officer Craig Chapman said an additional 1,800 workers have been notified that their positions will likely be eliminated in the first quarter of this year. He said lowering the company's head count is "necessary and integral" to WaMu's ambitious plan to reduce its cost structure by $1 billion. WaMu can be found online at http://www.wamu.com.

Fitch Ratings has downgraded two classes of First Union Home Equity Loan Trust issues.Class B of series 1997-1 and class B of series 1997-2 were downgraded from BBB-minus to BB-minus. Fitch said it downgraded the classes because losses have been higher than expected and have resulted in the depletion of overcollateralization.

Two classes of Structured Asset Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings.Fitch also affirmed the ratings on 15 other classes. Class 1-B4 of SASCO series 1998-11, group 1, was downgraded from BB to B, and class 1-B5 of the same series was downgraded from C to D. The downgrades were attributed to loss levels, loss expectations, and high delinquencies relative to the applicable credit support. Fitch can be found online at http://www.fitchratings.com.

Sell-side debt market participants expect mortgage-backed securities issuance to decline 48%, to $1.6 trillion, in 2004, according to a new survey by The Bond Market Association.The median survey response indicates that members of the association are anticipating a 47.8% dropoff in agency MBS issuance and a 51.3% reduction in private-label MBS activity. This would bring total agency MBS issuance to $1.06 trillion this year and reduce private-label MBS issuance to $256 billion. TBMA can be found on the Web at http://www.bondmarkets.com.

Fitch Ratings has downgraded 164 classes in 57 Conseco Finance/Green Tree Finance manufactured housing transactions.Fitch also affirmed its ratings on 117 classes in the 57 deals. The rating agency said the downgrades reflect the poor performance of the MH pools. Since CFC's Chapter 11 bankruptcy filing in December 2002, the company has continued to service its multibillion-dollar MH portfolio. Fitch said CFC's financial stress before and during the bankruptcy has affected the servicing operation by limiting capital and spurring high employee turnover. "As CFC has struggled to achieve the most appropriate method of servicing in a difficult environment, servicing practices have changed numerous times," Fitch said. ".... These changes have led to considerable volatility in performance." In June 2003, CFC's MH platform was sold to CFN Investment Holdings. "Although the sale has provided new capital, the degree of servicing stabilization remains to be seen," Fitch said, adding that some changes in servicing practices have only recently been implemented. Liquidation rates had slowed before the bankruptcy filing, causing CFC's repossession inventory to increase. "After the bankruptcy filing, the combination of the backlog of repossessed inventory and the exclusive reliance on the wholesale channel to rapidly liquidate the inventory resulted in a significant increase in liquidation rates and loss severities," Fitch said.

Fitch Ratings has revised its random-sample criteria for deciding whether to rate mortgage-backed securities supported in part by home loans from jurisdictions with unlimited assignee liability.Fitch previously indicated that it would not rate any residential MBS containing high-cost home loans from jurisdictions with effective legislation that imposes unlimited assignee liability (such as Kentucky and New Jersey). In order for it to rate an RMBS deal with any loans from such a jurisdiction, Fitch said a third party unaffiliated with the originators must certify that it had conducted due diligence on a random sample of 10%-25% of the loans from the jurisdiction and discovered no high-cost home loans. Under the revised criteria, the number of loans to be reviewed in the random sample should be five loans from each jurisdiction with unlimited liability, or 10% of the loans in the pool from each such jurisdiction, whichever is greater. As before, if the review of the sample uncovers any high-cost home loans, a review of every loan in the pool originated in that jurisdiction will be required in order to comply with the criteria. Fitch can be found online at http://www.fitchratings.com.

J.P. Morgan Chase's purchase of Bank One, Chicago, would create the nation's largest second-lien lender, according to figures compiled by National Mortgage News and Home Equity Wire.Based on third-quarter production of seconds, Chase Home Finance ranked third nationwide, with $7.4 billion, and Bank One sixth, with $4.7 billion. The market leader, Washington Mutual, Seattle, funded $9.6 billion in seconds during the quarter. If the second-lien production volumes of Chase and Bank One are combined, the firms would rank first, with $12.13 billion, based on third-quarter figures. The second-lien volumes come from a survey of conforming lenders and represents mostly 'A' credit quality loans. But JPM's purchase of Bank One is not expected to alter the first-lien residential market much because Chase is already a large player and Bank One is not.