Servicing

Prepayment speeds for Freddie Mac mortgage-backed securities were virtually unchanged in the July reporting period, but "there are treacherous currents just below the surface," according to the Bear Stearns Prepayment Commentary.Analysts Dale Westhoff and Bruce Kramer said changes in conditional prepayment rates were generally in the 1-2 CPR range. The report "is remarkable because all sectors did nearly the same thing, albeit for different reasons," they said. Discounts "continue to be helped by the strong housing market," while declining speeds for higher coupons were "tempered this month by turnover demand, which continues to support speeds in all coupons," the Bear Stearns analysts said. They warned that it would be unwise for investors to feel complacent about prepayments. "Mortgage rates will not stay range-bound indefinitely," the analysts said. "If they do break out on the down side, there is a massive amount of product that is eminently refinanceable, and that still has high collateral factors."

The ratings on the senior classes of six Western Federal Savings and Loan Association securitizations have been downgraded as a result of servicing-related cash flow misallocations, Moody's Investors Service has announced.In addition, the ratings of certificates from 15 other Western Fed mortgage-backed deals were placed under review for possible downgrade, the rating agency said. The downgraded securities were the Class A-1 and the interest-only Class A-2 certificates from Western Fed's Series 1990-1, 1990-2, 1990-3, 1990-4, and 1990-5 deals and the Class A certificates from its Series 1991-4 securitization. The actions stemmed from servicing and administrative problems that resulted in significant misallocations of cash flow and losses, one involving more than $900,000, Moody's said. Most pertained to delinquent property taxes and related penalties and fees that were unpaid as a result of the servicer's failure to pursue collection, according to the rating agency. Moody's said the Federal Deposit Insurance Corp., as master servicer of the deals, has indicated that it will cover losses attributable to servicing problems. "However, it remains unclear from the trustee reports whether the full extent of misallocated cash flow and losses has been identified and whether future misallocations will occur and be spotted," the rating agency said. The affected deals used GEMICO pool policies as their primary credit enhancement, but GEMICO rejected some claims because its policies do not cover losses due to weak servicing or special-hazard claims, Moody's said. The Moody's website address is http://www.moodys.com.

First Alliance Corp., Irvine, Calif., has reported earnings of $0.8 million ($0.04 per share) for the second quarter, compared with $7.9 million ($0.36 per share) a year ago.The company attributed the sharp falloff in earnings to a prepayment-related writedown, a reduction in net origination fees, and the postponement of the planned securitization of loans originated in the United Kingdom. The writedown of approximately $4.5 million in the value of First Alliance's residual interests -- as well as an $0.8 million increase in accelerated amortization on mortgage servicing rights -- stemmed mainly from "significant increases" in prepayments on adjustable-rate loans, the company said. The approximately 20% reduction in net origination fees resulted from lower-than-expected retail loan production, although it totaled $100 million, up 8% from $92 million a year earlier, First Alliance said.

The Clayton Companies, Shelton, Conn., have acquired Prudential Asset Recovery, a third-party manager of real estate owned.Prudential Asset Recovery, formed in 1992, is currently a subsidiary of Prudential Real Estate and Relocation. The company has handled the management, marketing, and resolution of over 17,000 properties on behalf of mortgage lenders. Terms of the transactions were not disclosed. The Clayton Companies provide due diligence, advisory, and default management services for residential and commercial real estate loan portfolios.

C-BASS has entered the seller-financed mortgage market by acquiring Wynwood Inc. and South Plains Mortgage Inc. C-BASS said the Tacoma, Wash.-based Wynwood is the nation's largest servicer of seller-financed mortgages and South Plains, located in Midland, Texas, is a leading buyer.Seller-financed mortgages are loans originated when the seller of a property accepts a mortgage note directly from the buyer. "C-BASS will combine our existing capabilities in servicing and securitizing residential mortgage loans with the data and customer relationships of Wynwood and the purchasing expertise of South Plains Mortgage," said C-BASS CEO Bruce Williams. C-BASS's specialty servicing company, Litton Loan Servicing, will provide collection and loss mitigation services for owners of seller-financed notes, Mr. Williams said.

Standard & Poor's has affirmed its ratings on Ocwen Financial Corp., West Palm Beach, Fla., in the wake of Ocwen's announcement that it had taken a prepayment-linked $77.6 million writedown in the second quarter, resulting in a net loss of $37.9 million.Ocwen reported that "unprecedented" prepayment levels and "a continued inversion in the shape of the yield curve" had caused it to write down the book value of its interest-only and inverse IO securities and to "discontinue this investment activity." S&P attributed its rating action to Ocwen's continued strength. "Although the realized loss in the IO portfolio represented nearly 15% of consolidated capital, capital levels remain commensurate with the company's rating and credit profile," S&P said, citing high internal capital generation and strong financial performance from core operations. S&P also noted Ocwen's announcement that it has engaged an investment bank to identify strategic partners for further expansion of its core business lines. S&P's website address is http://www.ratings.standardpoor.com.

The triple-A ratings on two series of mortgage revenue bonds issued by the Prince Georges County [Md.] Housing Authority have been placed on CreditWatch with negative implications by Standard & Poor's.The affected bonds are the authority's mortgage revenue refunding bonds (GNMA collateralized; Regent Street Station), Series 1993A and its taxable mortgage revenue refunding bonds (GNMA collateralized; Regent Street Station), Series 1993B. The actions stemmed from the fact that the successor trustee, the Bank of New York, did not have sufficient funds set aside to carry out the July 29 scheduled redemption of all outstanding bonds, S&P said. "Although the trustee does not currently have the funds, the bank expects to be able to provide the funds or obtain the monies through another source," the rating agency said. The redemption is the result of a mortgagor default on the mortgage note, which caused a prepayment of the Ginnie Mae security. S&P said the proceeds from the Ginnie Mae security were not used to redeem bonds, as provided for in the trust indenture, but were reinvested at a rate below the bonds' true interest cost. S&P's website address is http://www.ratings.standardpoor.com.

Midland Loan Services Inc., Kansas City, Mo., has closed a $1.2 billion securitization of commercial mortgages, the first joint deal with its new parent company, PNC Bank Corp. Midland said the deal is important because "it is one of the first times an issuer has successfully combined loan origination, servicing, and subordinate CMBS investing under one roof."In the transaction, Commercial Mortgage Acceptance Corp. Series 1998-C1, Midland and PNC Bank pooled their loans, with Midland acting as depositor and PNC Capital Markets Inc. as selling agent. In addition, Anthracite Capital -- a real estate investment trust sponsored by BlackRock, an affiliate of the bank -- agreed to acquire the subordinate bonds. The securities were backed by 322 fixed-rate commercial and multifamily mortgages secured by properties in 39 states, with the highest concentrations in California, Pennsylvania, and New Jersey. Midland will be the master and special servicer on the transaction. Morgan Stanley Dean Witter was the lead underwriter.

IMC Mortgage Co., Tampa, Fla., has reported earnings of $16.3 million ($0.47 per share) for the second quarter, up 52% from $10.7 million ($0.36 per share) a year ago.Loan originations totaled $1.9 billion, up 39% from $1.4 billion a year ago. IMC delivered $1.6 billion of loans into securitizations and $274 million into whole loan sales for the quarter, the company said. The serviced loan portfolio totaled approximately $9.4 billion as of June 30, up from $4.0 billion a year earlier. Loans delinquent more than 30 days (including those in foreclosure or bankruptcy) represented 7.43% of the portfolio as of June 30, compared with 7.29% on March 31, IMC said.

United Companies Financial Corp., Baton Rouge, La., has reported net income of $4.3 million ($0.13 per share) for the second quarter, down 82% from $23.8 million ($0.73 per share) a year ago.Home equity loan production totaled $802.5 million for the quarter, up 14% from $703.4 million a year ago, while total loan production was $968.6 million, up from $756.9 million, UCFC said. The earnings figure fell within the $3-5 million range the company predicted July 21 when it announced the retention of Salomon Smith Barney to assist in seeking a "strategic partnership." The falloff in earnings was attributed partly to a prepayment-related $10 million charge to the value of UCFC's interest-only and residual certificates. As a result of the July 21 announcement, UCFC's ratings were placed under review by Standard & Poor's and Duff & Phelps Credit Rating Co. UCFC's website address is http://www.unitedcompanies.com.