Servicing

Southern Pacific Funding Corp., Lake Oswego, Ore., has reported that loan prepayments in the second quarter were "in line with management expectations."SPFC, which also reported "strong growth" in loan originations, said it made the unusual pre-earnings announcement in view of industry concerns about prepayments. "Management does not anticipate any significant adjustments to assets relative to recent loan prepayment experience," the company said. SPFC also announced the signing of a $50 million subordinate and residual financing facility with Nomura Asset Capital Corp. and Nomura Securities (Bermuda) Ltd. SPFC's website address is http://www.sp-funding.com.

Community First Bancshares Inc., Fargo, N.D., has agreed to sell the operating assets of its subprime mortgage lending subsidiary, Equity Lending Inc., to FirstPlus Financial Group Inc., Dallas.The terms of the cash transaction, and another involving the sale of the assets of the company's subprime auto lending subsidiary, were not disclosed. Community First said it will retain approximately $50 million in loans originated by Equity Lending as well as the servicing rights on another $100 million of Equity Lending loans that have been sold. Equity Lending was acquired via Community First's merger with Mountain Parks Financial Corp. in December 1996 and had been classified as a discontinued operation on the company's 1997 financial statements.

Meanwhile, prepayment rates for Fannie Mae non-discount MBS showed little change in the July reporting period, including those for 7%-8% coupons, according to the Bear Stearns Prepayment Commentary.[Click here to see the table.] The Bear Stearns analysts termed the Fannie Mae speeds "extremely muted" in comparison to Ginnie Mae's, increasing only 1.4% for 30-year 7.5s and a mere 0.4% for 30-year 8.0s. "Why the tepid response in these cuspy coupons?" the analysts asked. "Most likely, this is largely noise, a result of minor reporting differences between the agencies." They added, however, that the Fannie Mae 7.5 is "somewhat less burned out" than the Ginnie Mae 7.5. Prepayment rates for discount Fannie Mae MBS showed "solid gains," rising about 20% for 30-year 6.5s. The analysts warned that the calm in the latest Fannie Mae report "masks the potential for higher speeds, particularly in the cusp coupons, and we expect more pressure on conventional 7.5% speeds next month."

Prepayment rates for certain Ginnie Mae mortgage-backed securities have responded quickly to declining interest rates, and "prepayment surprises" may lie ahead, according to the Bear Stearns Prepayment Commentary.Though speeds for Ginnie Mae MBS with coupons of 8% or higher were generally slower or flat, those for lower coupons "show strength across the vintage spectrum," said Bear Stearns analysts Dale Westhoff and Bruce Kramer. [Click here to see the table.] They noted that speeds for the 7.5s have not exceeded their March peaks, but said the quick response to early May's rate declines indicates "substantial pent-up demand" in the 7.5% coupon. "Despite the general downward trend in most prepayment reports since March/April, borrowers are obviously quick to take advantage of refinancing opportunities, however brief they may be," the analysts said. "As we hover at the bottom of the January-July trading range, this suggests that prepayment surprises, particularly in the cusp coupons, may be on the agenda for a few more months."

United Financial Inc., Denver, is brokering the sale of servicing rights on a $219 million portfolio of Fannie Mae/Freddie Mac home loans.The average loan balance is $89,000. The weighted average interest rate is 8.78%. Bids are due July 21.

A national loan servicing portfolio totaling $3 billion in Fannie Mae/Freddie Mac home loans is being brokered by Countrywide Servicing Exchange, Pasadena, Calif. The average loan balance is $127,093 and the weighted average note rate is 7.198%.Bids are due July 16.

Stephen J. Rotella has been named to the newly created position of chief operating officer of Chase Home Finance, a unit of Chase Manhattan Corp. based in Edison, N.J., that deals with mortgages, home equity loans, and manufactured housing.Mr. Rotella, 45, will be responsible for post-production, servicing, technology, and underwriting and will report to Tom Jacob, the chairman and chief executive officer of Chase Home Finance. Mr. Rotella joined the company in 1987 and, over the past seven years, has directed its servicing business. Chase originated $40 billion in residential mortgages in 1997 and has a servicing portfolio of $178 billion.

The Federal Deposit Insurance Corp. has approved a final rule that raises the Tier 1 capital limit on mortgage servicing rights from 50% to 100%.Other federal banking and thrift regulators will follow shortly, and the agencies plan to publish the joint rule in the Federal Register before the end of July. The effective date of the long-awaited rule is Oct. 1. However, banks can elect to implement the high capital limit on the day the rule is published in the Federal Register. A few institutions have bumped up against the 50% capital limit, and the early effective date will provide relief from having to deduct excess MSRs from Tier 1 capital. The final rule maintains the current practice of requiring institutions to take a 10% haircut when valuing mortgage servicing assets for capital purposes.

Mego Mortgage Corp., Atlanta, has completed its recapitalization, but will take a third-quarter loss of $55 million.The company generated $87.5 million of new equity from various sources. City National Bank, Charleston, W.Va., and Sovereign Bancorp Inc., Wyomissing, Pa., have acquired $10 million in convertible preferred stock. Both have options to acquire $10 million of Mego common stock at $1.50 per share. City Mortgage Services, an affiliate of City National, has acquired the right to service approximately $536 million of mortgages now serviced by Mego and the exclusive right to service up to $1 billion of mortgages originated or acquired by Mego in the future. Another unnamed strategic investor has acquired $5 million in preferred stock, while other private investors have purchased $15 million of Mego's common stock at $1.50 per share. In addition, Mego exchanged $79 million of senior subordinated notes for $37.5 million of preferred stock and $41.5 million in new senior subordinated notes. Mego also announced that Champ Meyercord, formerly a senior investment banker with Greenwich Capital Markets, is the company's new chairman and chief executive. Mr. Meyercord will be heading up a company that will lose at least $55 million for its fiscal third quarter, which ended on May 31. This loss comes from additional reserves against loans held for sale, writedowns of capitalized fees and expenses resulting from the recapitalization, and a writedown in the carrying value of mortgage-related securities.

The House is set to vote on a private mortgage insurance reform bill July 14.Lawmakers have resolved several sticking points that had previously endangered the bill. Once voted on in the House it will move to the Senate, where mortgage industry lobbyists are predicting easy passage. "The bill provides a happy medium for both servicers and borrowers," said Karen Kapen, a lobbyist for the Mortgage Bankers Association of America, which supports the legislation. The bill, also backed by the Mortgage Insurance Companies of America, calls for automatic cancellation of private MI once a borrower's equity reaches 22%, although creditworthy borrowers can cancel at 20% equity. Servicers will notify borrowers once these equity levels have been attained. The proposed legislation provides a federal preemption, except for those states that already have private MI laws, including California, Connecticut, Maryland, Minnesota, Missouri, New York, and Texas. There is no federal regulator under the proposed MI reform bill, which means the courts will have to resolve any consumer or lender complaints.