Servicing

Hanover Capital Mortgage Holdings Inc., a financially troubled real estate investment trust based in Edison, N.J., has announced an agreement to merge with JWH Holding Co., the parent company of Walter Mortgage Co. and Jim Walter Homes. JWH Holding is a wholly owned subsidiary of Walter Industries Inc., a producer and exporter of U.S. metallurgical coal, which plans to distribute 100% of its interest in JWH Holding to its shareholders. Before the distribution, Jim Walter Homes will be sold or otherwise separated from JWH Holding and will not be part of the spinoff entity, Hanover said. The merger will occur immediately after the spinoff, and the combined company, named Walter Investment Management Corp., will continue to operate as a publicly traded REIT. "Walter Mortgage Co. brings a strong balance sheet and track record to the combined companies," said John A. Burchett, Hanover's chairman and chief executive officer. After the merger, the new company is expected to be headquartered in Tampa, Fla. Hanover's stock, which trades on the American Stock Exchange, has a 52-week high of $2.15 per share and a 52-week low of only $0.08. It was trading at $0.25 per share late Wednesday morning. Hanover can be found online at http://www.hanovercapitalholdings.com.

The Hope for Homeowners program will allows lenders to conduct "trials" to see if troubled borrowers can make their payments under a newly refinanced Federal Housing Administration mortgage. Congress directed the Department of Housing and Urban Development to establish the special FHA refinancing program, and the department is issuing lender and servicer guidance on Oct. 1. "I strongly encourage homeowners and lenders to look into this program," HUD Secretary Steve Preston said. At the request of lenders, the Hope program provides for a "minimum three consecutive month trial modification" for borrowers with higher-than-normal debt-to-income ratios. The origination guidance also allows second lienholders to share in future appreciation of the property, if they waive all rights to collect existing debt.

Bowing to pressure from Congress and industry groups, the Securities and Exchange Commission and the Financial Accounting Standards Board have issued a last-minute clarification that will allow companies to use expected cash flows to value illiquid mortgage assets in preparing their third-quarter financial reports. The two accounting bodies stopped short of suspending a fair-value accounting rule (Financial Accounting Standard 157) that some of members of Congress are trying to kill as part of a $700 billion financial stabilization bill. "When an active market for a security does not exist, the use of management estimates that incorporate current market participants' expectations of future cash flows, and include appropriate risk premiums, is acceptable," according to a joint statement by SEC and FASB staff. Critics have been complaining that FAS 157, which went into effect Jan. 1, has forced banks and other financial institutions to value some assets at fire-sale prices. This rule has exacerbated the credit crisis by forcing "massive writeoffs," according to the Consumer Mortgage Coalition. "It makes no sense to unnecessarily cripple institutions that could otherwise weather this storm of financial uncertainty by being forced to continue to mark down their assets to unrealistic fire sale prices," CMC executive director Anne Canfield says in a letter to SEC Chairman Christopher Cox.

The cumulative step-down preferred stock ratings of Home Ownership Funding Corp. I and II have been downgraded from Aa2 to Ba2 by Moody's Investors Service. The outlook is developing. HOFC is a real estate investment trust that is 99% owned by Freddie Mac, which recently announced that HOFC will stop paying preferred dividends. "Moody's believes that the suspension of HOFC's preferred dividends may last several years," the rating agency said. "Moody's expects that HOFC will have sufficient resources to pay the cumulative dividends upon the re-institution of payments." Moody's can be found on the Web at http://www.moodys.com.

Wingspan Portfolio Advisors LLC, a Carrollton, Texas-based mortgage servicing specialist, has been formed to assist lenders and servicers plagued by seriously delinquent loans, according to the company. The company said it applies a borrower-focused servicing methodology aimed not only at mitigating losses, but also at helping borrowers achieve full-payment status resulting in "re-performing" loans. Wingspan was founded and is led by servicing industry veteran Steven Horne, a lawyer who formerly served as director of servicing risk strategy with Fannie Mae. He spent nine years as a partner with Sherman Financial Group, and previously served as director of default servicing for Ocwen, where he provided outsourcing services to Freddie Mac. Wingspan can be found online at http://www.wingspanadvisors.com.

Fitch Ratings has placed Citigroup Inc.'s AA-minus long-term Issuer Default Rating on Rating Watch Negative in the wake of Citi's acquisition of Wachovia Corp.'s retail, corporate/investment, and private banking operations. Fitch said the strategic benefits of the acquisition "are tempered by Citi's own escalating asset quality challenges." Separately, Fitch placed Wachovia Bank on Rating Watch Evolving and downgraded Wachovia's long-term IDR from A-plus to BB-minus. Noting that Wachovia is expected to be left with two operating businesses, Wachovia Securities and Evergreen Asset Management, Fitch said the balance sheet is likely to be funded with the remaining $9.8 billion in outstanding preferred stock and several billion dollars in equity. "There is a meaningful possibility that the earnings of the remaining businesses will be strong enough to service the preferred dividends," the rating agency said. "Alternatively, it is possible that a merger partner may emerge for the residual Wachovia Corp. However, the downgrade of Wachovia Corp. reflects Fitch's view of the considerable uncertainty surrounding these assumptions, particularly as Wachovia Securities would be carved away from the bank and no longer benefit from existing synergies." Fitch can be found online at http://www.fitchratings.com.

House prices fell another 0.9% in July and prices are down 16.3% over the past 12 months, according to the Standard & Poor's/Case-Shiller housing price index. Despite the downward trend, the 20-city HPI shows an uptick in monthly house prices in nine cities. "While some cities did show some marginal improvement over last month's data, there is still very little evidence of any particular region experiencing an absolute turnaround," S&P's David Blitzer said. Prices have risen in Atlanta, Boston, Dallas, Denver, and Minneapolis for three months or more. The Office of Federal Housing Enterprise Oversight reported Sept. 23 that home prices fell 0.6% from June to July on a seasonally adjusted basis. The S&P/Case-Shiller index can be found online at http://www.homeprice.standardandpoors.com.

Industry measures to keep homeowners out of foreclosure have slipped, according to a report from the State Foreclosure Prevention Working Group, which includes state attorneys generals and banking regulators. "While banks and Wall Street firms continue to report record writedowns of mortgage loan portfolios and securities, the losses do not appear to be flowing down to homeowners in the form of sustainable loan modifications," said Iowa Attorney General Tom Miller, a founder of the working group. The report, the third Analysis of Subprime Mortgage Servicing Performance issued by the group, covers data from subprime mortgage services for February through May of 2008. It said nearly eight of 10 seriously delinquent homeowners are not on track for any loan work-out or loss mitigation assistance. New efforts to prevent foreclosures are on the decline, despite a temporary increase in loan modifications through the second quarter. One out of five loan modifications made in the past year is delinquent. Three hundred thousand subprime loans were in the process of foreclosure as of the end of May. Thirty-eight percent of seriously delinquent subprime loans are in the process of foreclosure, with over 131,000 foreclosures completed on subprime loans in May alone, according to the report.

Senate leaders want to pass the $700 billion emergency economic stabilization bill this week with minor changes that can attract more support in the House, which voted down the Bush administration's plan on Monday. "I want to reassure the American people that we intend to pass this legislation this week," said Sen. Mitch McConnell, R-Ky. "We will pass it on a board bipartisan basis, both sides cooperating to prevent this financial crisis from persisting." The Senate Republican leader stressed that Congress can "act like grown-ups" and get the job done. Senate Majority Leader Harry Reid, D-Nev., said the Democrats are committed to passing the rescue package. "I am hopeful and confident that all sides -- the House, the Senate, and the White House -- will continue working together toward this goal," Sen. Reid said. There are rumors that the Senate might vote Wednesday on the emergency bill, which would put pressure on the House to pass the bill on Thursday. But the House could make changes to the Senate-passed bill, which would require another vote on passage in the Senate. Sen. Reid wants only "one vote," a source said.

The House of Representatives failed to pass a $700 billion bill Monday afternoon to purchase troubled mortgage assets from financial institutions as two-thirds of Republicans voted against the bill and Democrats could not muster enough support to push it over the top. The final vote was 205 for passage and 228 against the bill. A close vote on the Bush administration plan was expected. However, the measure is very unpopular back home with constituents, and lawmakers were reluctant to vote for such a huge package that critics painted as a bailout for Wall Street firms and banks that profited and later got into trouble because of reckless subprime mortgage lending. The Senate was expected to pass the Emergency Economic Stabilization Act if approved by the House. Following the vote, House leaders pledged to make another effort to work together and pass a bill in the next few days -- possibly on Thursday. "What happened today cannot stand," said House Speaker Nancy Pelosi, D-Calif. "We must move forward, and I hope the markets will take that message," she said after the Dow Jones industrial average had plunged 600 points. Rep. Roy Blunt, R-Mo., said the Republicans are going to work toward a compromise that can pass and the president can sign.