Servicing

Personal bankruptcies rose 5.9% in the second quarter to a record 361,908, according to the American Bankruptcy Institute.The ABI report shows that bankruptcy filings are up 20,000 over first-quarter filings and that 1.38 million Americans have filed for bankruptcy over the past four quarters ended June 30. Personal bankruptcies for all of calendar year 1997 totaled 1.35 million. ABI executive director Samuel Gerdino said the dramatic increase in consumer filings can be attributed to sustained high levels of household debt and a fear that Congress will pass bankruptcy reform legislation this year. "Debtors' attorney's are aware that the bankruptcy code may change dramatically in the next few months and may be advising their clients to take advantage of the current law while it is still available," Mr. Gerdino said.

Loans with high loan-to-value ratios are risky, and high-LTV pools will probably experience losses comparable to those of credit card pools, says a new report by Moody's Investors Service.High-LTV lenders have little margin for error because the loans have little or no equity protection, and therefore servicing is a critical element, according to Linda Stesney, a managing director in residential mortgage finance. As a result, lenders "are likely to suffer a complete loss if they make a mistake in assessing a borrower's credit quality and the borrower defaults," said Ms. Stesney, an author of the report. Despite the risks, lenders have been drawn to the high-LTV market by healthy margins, and Moody's estimated that high-LTV loans will hit $15 billion this year, nearly double 1997's total of about $8 billion. Moody's also said high-LTV lenders lack protections available to credit card lenders, such as credit line reductions and interest rate increases, and noted that high-LTV securitizations lack the early amortization trigger that allows investors to escape from a bad credit card deal within two years. Moreover, since they are longer-term assets than credit cards, high-LTV loans "are even more vulnerable to the 'four Ds of underwriting': downsizing, death, divorce, and disease," Moody's said. The Moody's website address is http://www.moodys.com.

The Comptroller of the Currency is warning that a slowdown in the domestic economy is coming and the resulting credit problems will force banks to increase their provisions for loan losses.In fact, OCC officials expect that second quarter call report data -- to be released in early September -- will slow that banks have already started to increase these reserves. Loan loss reserves are currently at a 10-year low, and the precipitous decline in these reserves during the 1992-94 period has contributed to strong bank earnings over the past several years. The economic slowdown, due to problems in Asia and to some extent the year 2000 computer problem, "will lead to some credit problems in bank portfolios," OCC director of economic analysis Nancy Wentzler told reporters Tuesday morning. The OCC economist would not estimate the magnitude of the economic slowdown, but the OCC has not been this concerned about the economy since 1992, she said. Although bank earnings in the second quarter are near record highs, there has been a slowdown in after-tax corporate profits for all companies, Ms. Wentzler said. Banks and nonbanks are finding it more difficult to reduce expenses, she added.

Associates First Capital Corp., Irving, Tex., has agreed to buy Avco Financial from Textron Inc. for $3.9 billion in cash.Associates, the largest residential subprime lender/servicer in the U.S., is buying Avco to help expand its international business, which includes Canada, Australia, the U.K., New Zealand, France, and other countries. Avco, with $8.9 billion of assets and 2.5 million customers, has 1,265 consumer finance offices worldwide and has the fourth-largest consumer branch network in the U.S. No information was available about Avco's role (if any) in the residential subprime market. Other interested bidders in Avco include G.E. Capital Corp. and Norwest Corp. (Last year Norwest was eyeing United Companies, Baton Rouge, which is currently on the auction block.) At noon today Associates' shares were down $2 to $72 and change.

Mortgage employment broke yet another record in July as the industry added 3,800 full-time jobs to the previous month's total.According to figures compiled by the Bureau of Labor Statistics, the mortgage banking/brokerage sectors employed 292,100 full-timers in July compared with 288,300 in June. A year ago the industry employed 252,400. Over the past 12 months industry employment has increased by a startling 15.7%. Mortgage lenders are beginning to have trouble finding enough qualified loan processors and underwriters. Residential lenders are on track to produce a record-breaking $1.2 trillion in loans this year. Some lenders expect demand to decline in the fall and winter months when homebuying traffic typically slows. The BLS website address is http://stats.bls.gov.

Municipal Mortgage & Equity LLC, Baltimore, has completed a $6.25 million tax-exempt mortgage revenue bond transaction.The 7.09% 15-year bond, issued by the Weymouth Housing Authority, is secured by the Queen Anne IV Apartments, a 110-unit multistory apartment and townhouse community in Weymouth, Mass., southeast of Boston. MuniMae -- which originates, invests in, and services tax-exempt multifamily housing bonds -- earned a 1.0% origination fee on the transaction and will retain the mortgage servicing rights.

Headlands Mortgage Co., Larkspur, Calif., has reported pro forma net income of $7.1 million ($0.35 per share) for the second quarter, up from $3.3 million ($0.22 per share) a year ago.The results were reported on a pro forma basis, "assuming the conversion from an S corporation and as if the company had been fully subject to federal and state taxes as a C corporation" for the reported periods, Headlands said. (The company's S corporation status ended in the first quarter with an initial public offering of 9.2 million shares.) Total loan production in the second quarter was nearly $2.1 billion, compared with $825 million a year earlier. Of that total, $1.3 billion were non-agency loans (including $1.0 billion of alternative-A loans), $499.7 million were agency loans, and $234.8 million were home equity loans, the company said. Headlands' servicing portfolio totaled $4.8 billion with a weighted average coupon of 8.31% as of June 30, compared with $3.9 billion and a weighted average coupon of 8.39% a year earlier, the company said.

Robert E. Woods, managing director and head of loan syndications for the Americas at Societe Generale, has been named to the board of directors of Criimi Mae Inc., Rockville, Md. He replaces Larry H. Dale, who is stepping down because his company, Newman & Associates, has been acquired by a Criimi Mae competitor.Before joining Societe Generale, Mr. Woods was managing director and head of real estate capital markets and mortgage-backed securities at Citicorp. He is considered a pioneer in the modern loan syndication business.

Federal banking and thrift regulators have finalized a rule that raises the Tier I capital limit on mortgage servicing rights from 50% to 100%.The effective date of the final rule is Oct. 1. However, banks can elect to use the higher capital limit once the rule is published in the Federal Register. A few institutions have bumped up against the 50% capital limit, and an early effective date will provide relief from having to deduct mortgage service assets from Tier I capital. The final rule maintains the current practice of requiring institutions to take a 10% haircut when valuing mortgage servicing assets for capital purposes. However, regulatory relief bills moving through Congress would repeal the 10% haircut requirement that was first enacted in 1988 as part of the savings and loan bailout legislation.

First Mortgage Corp., Diamond Bar, Calif., has reported net income of $1.16 million ($0.20 per share) for its fiscal first quarter ended June 30, up 338% from $264,000 ($0.05 per share) a year earlier.Loan originations totaled $223.1 million for the quarter, up 157% from $86.8 million a year earlier, the company said. Loan servicing income rose 3.7% to $1.92 million. As of June 30, First Mortgage serviced $1.66 billion in loans, down from $1.70 billion a year earlier. The company attributed the decline to increased prepayments.