Servicing

Countrywide Financial Corp., Calabasas, Calif., hopes to service $650 billion of home loans by the end of this year, chairman Angelo Mozilo told investors at the company's annual meeting.Mr. Mozilo said the company has experienced "the largest amount of servicing portfolio growth among the 10 largest servicers" over the past year. At the end of May, Countrywide serviced $537 billion of home loans for more than four million customers, up from $452 billion at the end of 2002. The company can be found online at http://www.countrywide.com.

Fannie Mae has told its employees to keep quiet about the Freddie Mac accounting scandal and not to discuss it with anyone outside the company.It has also requested that its employees not send out any e-mail about what has occurred at Freddie Mac. "We've told them not to speculate or discuss the issues," a spokeswoman for the company said, adding: "We don't know what's going on, and we want to be very careful -- for legal reasons." On June 9 Freddie Mac fired its president, David Glenn, when it was revealed that he altered diaries regarding the firm's reaudit. As part of the same move, the company announced the retirement of its long-time chairman and chief executive officer, Leland Brendsel, and the resignation of executive vice president Vaughn Clarke. Fannie Mae can be found online at http://www.fanniemae.com.

Standard & Poor's Ratings Services has announced that it is revising the "form of comfort" it will request for the securitization of prepayment penalties.For transactions closing on or after July 1, the rating agency will request a representation and warranty that the prepayment penalties in the deal are enforceable and were originated in compliance with applicable federal, state, and local laws. For net interest margin securities, the reps and warranties should be made in the documents for the underlying mortgage-backed securitization, S&P said. "As with all other representations and warranties relating to origination and enforceability matters, S&P will rely on issuers to stay informed as to legal requirements governing prepayment penalties," the rating agency said. S&P noted that under an Office of Thrift Supervision rule scheduled to take effect July 1, certain non-federally chartered mortgage lenders will no longer have federal pre-emption protection in charging prepayment penalties, but will be subject to state and local laws regarding the charging of such penalties.

Loan pools backed by adjustable-rate mortgages originated in recent years have no additional risk related to the low interest rates at which they were originated, according to Standard & Poor's Ratings Services.According to an S&P commentary titled "Low Interest Rates Pose No Eminent Risk in U.S. Adjustable-Rate Mortgages," residential mortgage origination volume topped $2.4 trillion in 2002, of which ARMs represented about 17%. Rising interest rates can cause defaults if payment increases are greater than borrowers' income growth. But S&P said when forecast income changes are used in the analysis of debt-to-income ratios under rising interest rates, the risk appears to be "negligible" under the various forecasts. "Even under unlikely scenarios, borrowers' debt-to-income ratios remain within standard underwriting guidelines," said Francis Parisi, a director in S&P's Structured Finance group and the author of the report. ".... Given the forecasts, the correlation between change in income and change in rates, and the seven-year average life of a typical mortgage, today's ARMs should not result in higher-than-average default rates should interest rates rise in the future."

Standard & Poor's has lowered its equity ranking of Freddie Mac to two-STARS "Avoid" at $46.96 per share, citing concerns about federal investigations and questions about the candor of the government-sponsored enterprise."We believe the company has been less than forthright in giving investors adequate information regarding recent investigations," said Erik Eisenstein, an S&P equity analyst of mortgage companies, thrifts, and government-sponsored enterprises. "Only yesterday [June 11], the company disclosed that an SEC inquiry had been in effect since January. We are concerned about the magnitude of the investigation and its potential political fallout." The announcement came through S&P's MarketScope, the rating agency's market intelligence service. S&P had reiterated Freddie Mac's three-STARS "Hold" ranking (in effect since Jan. 27, when it was downgraded from four-STARS "Accumulate") the day after Freddie Mac announced the firing of David Glenn as president and chief operating officer. STARS stands for Stock Appreciation Ranking System. S&P can be found online at http://www.standardandpoors.com.

David Glenn, who was fired June 6 by Freddie Mac, is walking away from the company with $12.7 million in stock but is forfeiting $11.1 million in stock grants, according to company documents.Leland Brendsel, who retired from Freddie Mac on Monday -- the same day the company announced his retirement (and Mr. Glenn's firing) -- leaves the secondary giant with almost $30 million in stock and another $21.1 million in stock grants that vested when he left. (Their stock holdings are based on a share price of $50.) Documents released by Freddie Mac note that Mr. Glenn is not entitled to any compensation after June 6 because he was "terminated for cause." As of MortgageWire's deadline, Freddie Mac had not yet released the compensation package for Vaughn Clarke, whose resignation also came on Monday. All three men left the company in the wake of a widening accounting scandal that has roiled the bond and mortgage markets.

Regina M. Lowrie, president, chief executive officer, and a founder of Gateway Funding Diversified Mortgage Services, has been nominated as vice chair-elect of the Mortgage Bankers Association of America.Ms. Lowrie will become the first woman to be elected an officer of the MBA at the association's 90th Annual Convention Oct. 19-22 in San Diego. She now serves as the chair of the MBA's Residential/Single-Family Board of Governors and has been on the MBA board of directors since 1996, the MBA said. Ms. Lowrie has also served as the chair of the association's political action committee, MORPAC, and as a member of various other committees.

Standard & Poor's has reiterated its three-STARS "Hold" equity ranking of Freddie Mac at $52 per share.S&P said the stock has been ranked a "Hold" since Jan. 27, 2003, when it was downgraded from four-STARS "Accumulate." The announcement came through S&P's MarketScope, the rating agency's real-time market intelligence service. "Shares are at a historically low price-to-earnings multiple, but with a low degree of confidence in earnings-per-share estimates in light of a pending restatement, we would hold the shares," says Erik Eisenstein, an S&P equity analyst of mortgage companies, thrifts, and government-sponsored enterprises. S&P's Stock Appreciation Ranking System is based on the opinions of S&P equity analysts on the price appreciation potential of 1,200 U.S. stocks for the next six to 12 months. Rankings range from five-STARS (Strong Buy) to one-STARS (Sell).

The rate-indicative benchmark 10-year Treasury yield hit record lows of around 3.2% before noon Tuesday, but bond market participants were saying they believed the debt markets would ultimately shrug off the flight-to-quality prompted by Freddie Mac's audit-related management shake-up.As of about 9:50 a.m. Tuesday, agency debt spreads to Treasuries had in total widened out about five or six basis points from where they stood before Freddie's initial announcement early Monday, according to Scott Graham, managing director and co-head of the agency group at Greenwich Capital. However, Mr. Graham told MortgageWire he believed that announcements by two rating agencies late Monday indicating that they had put certain ratings of Freddie Mac or its securities on watch for possible downgrade, as well as concerns expressed by a politician who has been a longtime critic of the government-sponsored enterprises, had not done much to further hurt spreads, which were at the tightest levels in six years prior to June 9. He said the fact that Freddie Mac's problems have come to light and that the GSE is correcting them should be good for agency spreads in the long term.

The firing of Freddie Mac president and chief operating officer David Glenn was prompted by "his lack of cooperation and candor" with a special counsel appointed by the board of directors' audit committee to investigate accounting errors.Mr. Glenn did not provide "open and candid responses to the questions he was asked," Freddie Mac's new president and chief executive Gregory Parseghian said during a conference call. When he submitted personal diaries to the special counsel, he admitted that they were altered and pages were missing. Mr. Parseghian also said Mr. Glenn provided information about what was altered, but the new CEO said he didn't know whether Mr. Glenn had provided any information from the missing pages. Freddie Mac officials emphasized that they are not characterizing Mr. Glenn's misconduct as fraud, and they maintain that it does not have any effect on the economics or value of the publicly traded company or its risk management position. Meanwhile, the Office of Federal Housing Enterprise Oversight said it is initiating an investigation into misconduct by Freddie Mac employees. Mr. Parseghian, who met with OFHEO Director Armando Falcon Jr. early Monday morning, said he is only aware of one employee who is a target of the OFHEO investigation. The resignation of executive vice president and chief financial officer Vaughn Clarke is not linked to misconduct, he said.