Servicing

Fitch Ratings has announced that it will not rate loan pools containing home loans originated in Oakland, Calif., or high-cost home loan refinances originated in Los Angeles.Loans originated by entities regulated by the Office of Thrift Supervision are exempt from the prohibitions. The recent activity comes in response to municipal predatory lending laws in the two California cities, neither of which have taken effect because of lawsuits questioning their legitimacy. However, a recent court decision in favor of Oakland's law gave a push to the legislation in both places. The case is being appealed to the state Supreme Court.

In a quarterly earnings announcement, mortgage insurer PMI Group said a settlement with federal regulators to resolve loan servicing complaints at Fairbanks Capital Corp. is expected to cost shareholders $0.20 per share.PMI said that Fairbanks, which is partially owned by the mortgage insurer, has reached a proposed settlement with the Federal Trade Commission and the Department of Housing and Urban Development. PMI said Fairbanks' loss for the quarter was largely the result of aggregate pretax expenses of approximately $55 million in connection with the FTC/HUD proposed settlement, the related estimated costs of such a settlement, the estimated costs of potential settlements of certain class action lawsuits, and the estimated costs and fines relating to certain pending state regulatory actions. PMI said the terms of the proposed settlement of the FTC and HUD civil charges will require changes in Fairbanks' operations and the creation of a $40 million fund for the benefit of consumers allegedly harmed by Fairbanks.

Two classes of Bear Stearns Mortgage Securities Inc. mortgage pass-through certificates, series 1996-6, have been downgraded by Moody's Investors Service.Class B-4 was downgraded from Ba2 to Caa2, and class B-5 was downgraded from B2 to C, the rating agency said. In addition, three classes in the deal were upgraded. Moody's attributed the downgrades to insufficient credit enhancement to cover projected losses. Classes B-5 and B-6 are completely written-down, and class B-4 took its first writedown in August, Moody's said. The rating agency can be found online at http://www.moodys.com.

Eighty-seven classes from 13 Conseco Finance Corp. manufactured housing deals have been placed on review for possible downgrade by Moody's Investors Service.Moody's said the ratings review was prompted by high levels of cumulative losses and repossessions. The losses were triggered by various factors, including the company's bankruptcy filing, the suspension of its manufactured housing origination business, the discontinuance of its repossessed refinancing program, the suspension of its default transfer-of-equity program, and poor industry conditions, the rating agency said. "Since the suspension of its lending business, Conseco Finance has experienced lower recovery rates because it has been forced to liquidate repossessed units through wholesale channels rather than retail channels," Moody's said. The sale of Conseco Finance's MH business to CFN Investment Holdings II LLC (now Green Tree Investment Holdings II LLC) was completed in June. As part of the sale, a $150 million repossession financing fund was established by CFN and Fannie Mae, Moody's noted. "Moody's expects this additional funding to help over time, but uncertainty remains as to its impact on the performance of these deals," the rating agency said.

Countrywide Financial Corp., Calabasas, Calif., has reported record consolidated net earnings of $1.1 billion ($7.70 per share) in the third quarter, up 381% from $228.5 million ($1.74 per share) a year earlier and nearly triple its second-quarter earnings.Countrywide funded $125.9 billion of mortgage loans in the third quarter, up 98% from $63.6 billion a year earlier. Countrywide's servicing portfolio reached $606 billion at the end of September, up from $406 billion last year. "This was by far the most successful quarter in the company's history, as earnings for the three-month period exceeded 2002's full-year results," said Countrywide chairman and chief executive officer Angelo Mozilo. ".... Mortgage banking earnings rose to record levels, bolstered by strong improvement in our servicing sector, which benefited from net impairment recovery of [mortgage servicing rights] and other retained interests of $231 million before tax." Countrywide can be found online at http://www.countrywide.com.

Seven classes of ContiMortgage Corp. Home Equity Loan Trust certificates have been downgraded by Fitch Ratings.The downgrades were as follows: class B of Conti 1998-1, from BBB to B; class B of Conti 1998-2, from BBB to BB; class B-I of Conti 1998-3 group I, from BBB-minus to B; class B of Conti 1998-4, from BBB to B; class B of Conti 1999-1, from BB to CCC; and class B of Conti 1999-3, from BB to B. In addition, the ratings on class B-1 of Conti 1998-3 group I, class B of Conti 1999-1, and class B of Conti 1999-3 were removed from Rating Watch Negative. Fitch also affirmed the ratings on 37 ContiMortgage classes. The downgrades were attributed to a decline in credit enhancement relative to applicable credit support. "The spikes in losses are the effect of the recent procedural changes made by the servicer, Fairbanks Capital Corp., to its processes regarding the reconciliation of property values used in its net present value model," Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Although revenues in J.P. Morgan Chase's home finance unit fell 32% in the third quarter, the company was able to generate net income of $1.63 billion ($0.78 per share), up from $40 million ($0.01 per share) a year earlier."Our focus on execution against the backdrop of an improving economy has resulted in significant reductions in risk concentrations, strong year-over-year earnings growth, and improved competitive positions," said William B. Harrison Jr., J.P. Morgan Chase's chairman and chief executive officer. "I am especially pleased by the improvements in our commercial credit portfolio." Hedging of mortgage servicing rights during the quarter generated a net loss of $6 million. The company's home finance unit also suffered some losses from loan pipeline hedging and customer rate-lock extensions.

Buoyed by record mortgage originations, Wells Fargo & Co., San Francisco, has reported net income of $1.56 billion ($0.92 per share) in the third quarter, up 8% from $1.44 billion ($0.84 per share) a year earlier.The EPS figure was also a record, the company said. Wells Fargo said its mortgage origination volume totaled an industry record $161 billion in the third quarter, up from an industry record $135 billion in the second quarter. "Year to date we have originated an industry record of $399 billion, already surpassing the $333 billion we originated for all of last year," said Mark Oman, Wells Fargo's group executive vice president for home and consumer finance. The owned mortgage servicing portfolio rose to $674 billion in the third quarter, up 18% from the level recorded a year earlier, the company said. Mortgage servicing rights were carried on the balance sheet at $5.8 billion on Sept. 30, up from $3.8 billion as of June 30, Wells Fargo said. Wells Fargo can be found on the Web at http://www.wellsfargo.com.

Meanwhile, during a conference call with investors and analysts, Washington Mutual acknowledged more details about the loan pipeline problems that led to a shake-up in the senior management of the company's mortgage group in the third quarter.Kerry Killinger, chairman and chief executive officer of WaMu, said that as a result of both interest rate volatility and operational problems, some WaMu loan applications were not funded during the rate-lock period through no fault of the consumer. He said WaMu honored the interest rate locks despite the rising rate conditions, which caused WaMu to sell the loans at a loss, as previously disclosed. In addition, problems with the "timeliness" of information flows about the mortgage application pipeline led to insufficient hedging of the interest rate risk in the hedging. Mr. Killinger said WaMu is now confident that those operational problems have been corrected.

Washington Mutual, Seattle, earned $1.03 billion in the third quarter, despite losing $126 million during the period in connection with mortgage loan sales.But WaMu, which had warned the market in early September about its loan loss problem, did well in the quarter in part because it offset losses by reducing its servicing amortization rate -- at least that's the opinion of stock analysts who cover the mortgage banker. Smith Barney analyst Matt Vetto wrote in a research note that WaMu "used its toolkit to offset a loss from a widely-advertised hedging glitch." Mr. Vetto added that WaMu suffered a sequential decline in its servicing portfolio and is losing market share. In the second quarter WaMu reported a $475 million gain in regard to mortgage sales. Morgan Stanley analyst Ken Posner noted in his analysis that WaMu "missed consensus estimates [on earnings] by a sizeable amount." He added that "operational issues" at the mega-thrift, the nation's largest servicer of home mortgages, are "detracting significantly from current economic results." However, he said the risks facing WaMu "are not catastrophic in our view."