Servicing

First Commercial Mortgage Co., a subsidiary of the Little Rock, Ark.-based First Commercial Bank, has purchased $1.2 billion in loan servicing rights representing 24,000 mortgages on properties in Arkansas, Texas, Kansas, and Oklahoma.Jack Fleischauer, chairman and CEO of First Commercial Bank, said the bank's size and the similarities between its portfolio and the one recently acquired made the transaction attractive. First Commercial is merging with Regions Mortgage. Once that merger is completed, the combined portfolios of Regions Mortgage and First Commercial Mortgage will total about $23 billion, making Regions one of the top 35 mortgage servicers in the country.

Southern Pacific Funding Corp., Lake Oswego, Ore., has announced the completion of a $650 million securitization by its wholly owned subsidiary, Southern Pacific Secured Assets Corp. The mortgage loan asset-backed pass-through certificates, Series 1998-2 consisted of eight classes (plus an interest-only certificate with a notional balance of $178.4 million), with fixed-rate yields ranging from 6.04% to 6.76%.The yield on the A-1 floating-rate class was 17 basis points above the London Interbank Offered Rate. The lead underwriter was Lehman Brothers Inc., and Morgan Stanley Dean Witter, Prudential Securities Inc., and First Union Capital Markets Corp. were the co-managers. SPFC will be the master servicer of the certificates. Its website address is http://www.sp-funding.com.

Prepayment rates on most 30-year Freddie Mac mortgage-backed securities with coupons of 7.5%-8.5% slowed by 10%-15% in the June reporting period, according to the Bear Stearns Prepayment Commentary.Analysts Dale Westhoff and Bruce Kramer cautioned, however, that new 7.5s were 76 basis points in the money from February through May and that the 7.5% coupon "remains extremely vulnerable to brief flirtations" with lower interest rates. The 76-bp incentive "is just at the threshold for a full refinancing response, so any sustained move to lower mortgage rates would trigger an immediate reaction in this coupon," they said. The Bear Stearns analysts pointed to the fact that speeds for seasoned premium Freddie Mac MBS held strong, which they linked to the resurgence of home prices in California. They also cited surprisingly strong prepayment rates in the cusp and discount sectors. Overall, the analysts said the report confirms that "speeds will decay in a range-bound environment," but warned that it "should not be taken as a signal that prepayment risk is also declining."

Thornburg Mortgage Asset Corp., Santa Fe, N.M., has affirmed its strategy of investing in high-quality adjustable-rate mortgage securities and avoiding investments in interest-only strips, servicing, and fixed-rate mortgages.The prepayment rate on the company's portfolio "declined modestly" in June, Thornburg said. "Fully 94% of the company's ARM assets are securitized in order to minimize credit exposure and reduce funding costs," the company said. Thornburg said it does not own any IO strips, mortgage loan servicing, or 15- or 30-year fixed-rate mortgage products and does not intend to buy such products in the future. The company also said it has no intention of realizing any losses on the sale of its portfolio and "is not under any pressure to sell any assets."

Criimi Mae Inc., Rockville, Md., has purchased (or agreed to purchase) approximately $130 million of subordinated commercial mortgage-backed securities in two transactions.About $65 million of the CMBS were issued by Morgan Stanley Securities Corp., and the rest were issued by Mortgage Capital Funding Inc., a subsidiary of Citicorp. Criimi Mae president H. William Willoughby said investors should note the differences in investment strategies between Criimi Mae and residential mortgage real estate investment trusts. "Criimi Mae's financial results are largely insulated from any negative impact of prepayments for several reasons," Mr. Willoughby said. "First, [interest-only] strips represent less than 2% of total assets at March 31, 1998. Second, prepayment prohibitions or penalties on commercial mortgages serve to maintain CMBS yields. And finally, Criimi Mae acquires CMBS at a discount to face value." Prepayments are expected to increase the value of Criimi Mae's subordinated CMBS by making it more likely that the subordinated tranches will be fully repaid, he said.

With delinquencies rising, the Mortgage Bankers Association of America is urging homeowners to establish an emergency fund equal to three months' income to handle unexpected financial hardships and home maintenance costs.The MBA said the emergency fund should include money for making mortgage payments in the event of illness or loss of income. While unexpected repair bills contribute to financial problems, MBA executive vice president Paul Reid said that illness, loss of employment, and marital problems cause more people to lose their homes than all other reasons combined. The MBA's website address is http://www.mbaa.org.

Capstead Mortgage Corp., Dallas, has reported that the recently completed repositioning of its mortgage securities portfolio has resulted in losses of approximately $255 million and a reduction in the company's earnings potential."Due to the continued high level of mortgage prepayments and the possibility of further declines in long-term interest rates, we concluded it was prudent to substantially reduce the company's exposure to mortgage prepayments," said Capstead chairman and chief executive officer Ronn K. Lytle. The company sold its entire $977 million investment in interest-only securities, as well as $659 million of Fannie Mae and Freddie Mac adjustable-rate mortgage securities and $656 million of Ginnie Mae ARM securities, Mr. Lytle said. In addition to the loss of $255 million, the company said it expects to take an impairment charge of about $45 million on its mortgage servicing portfolio due to high prepayment rates. "The total charge will reduce total stockholders' equity from $857 million at March 31, 1998 to approximately $705 million at June 30, 1998," Mr. Lytle said. He said the company's net interest margin is "unlikely to improve" in the near future. "Additionally, the decreased asset levels and the disposition of the interest-only securities, while prudent from a risk management perspective, have diminished the company's earnings potential," he said. Capstead's third-quarter dividend is expected to be "considerably lower" than the previous estimate of 40-45 cents, Mr. Lytle said.

The delinquency rate for Federal Housing Administration-insured mortgages rose to a record high in the first quarter of 1998.According to data released Friday by the Mortgage Bankers Association, the FHA delinquency rate stood at 8.35% -- a 20-basis-point increase year over year. MBA executive vice president Paul Reid said a sharp rise in adjustable-rate mortgage delinquencies contributed to the overall increase in the number of troubled FHA loans. The delinquency rate for FHA-insured ARMs rose 100 bp over the past 12 months. Year over year, the FHA fixed-rate mortgage delinquency ratio increased 57 bp, MBA data show. Meanwhile, the overall delinquency rate for conventional and government-backed residential loans rose 13 bp to 4.47% in the first quarter -- the highest rate recorded by the MBA since the third quarter of 1995. Mr. Reid told reporters that an increasing number of the MBA's members are originating subprime mortgages and loan data collected from these lenders are inadvertently being mixed with data gathered from "A" paper mortgage companies. "Subprime delinquencies are starting to show up in our data, which is one reason why the overall rate is higher," Mr. Reid added. "We are working to separate out the B&C data."

The second-quarter earnings of Haven Bancorp Inc., Woodhaven, N.Y., will be affected by a one-time revenue reduction tied to its subsidiary CFS Bank's acquisition of the assets of InterCounty Mortgage Inc., Haven has reported.Under the terms of the purchase agreement, Haven was initially unable to recognize certain servicing release premiums from InterCounty's loan pipeline, but it will begin realizing the SRPs starting July 1, the company said. Haven said it does not expect the transaction to be dilutive to earnings per share in the first 12 months of operation, and believes it will be accretive thereafter.

New Century Mortgage Corp., Irvine, Calif., has completed its first net interest margin private placement.The $58 million offering, NC Finance Trust 1998-1, is collateralized by the residual bonds from four prior asset-backed securitizations: SBM7 1997-NC4, SBM7 1997-NC5, SBM7 1998-NC1, and NCHET 1997-NC5. The transaction was structured with debt and equity components, and New Century retained the equity portion, entitling it to receive residual cash flows from the trust. Brad Morrice, vice chairman and president of New Century Financial Corp., New Century Mortgage's parent, said the NIM transaction improved the company's balance sheet. "We reduced our residual assets, reduced the amount of residual financing outstanding, and improved liquidity," he said.