Servicing

The short-term ratings on six issues of variable-rate single-family mortgage bonds that have liquidity support from Lehman Brothers Commercial Bank have been downgraded from F1-plus to F3 by Fitch Ratings. The affected bonds are: Idaho Housing and Finance Association Single Family Mortgage Bonds Class I Variable Rate Bonds, series 2008 A and 2008 B; and Utah Housing Corp. Single-Family Mortgage Bonds (Master Indenture Dated May 1, 2000) Class I Variable Rate Bonds, series 2006 B, 2006 C, 2006 D, and 2006 E. All the bonds maintain long-term ratings of AAA, and the F3 short-term ratings are on Rating Watch Negative. The management at both housing issuers report that they are seeking replacements for the LBCB liquidity facilities, Fitch said.

The risk of home price declines in the nation's 50 largest housing markets has been "significantly heightened" by rising foreclosures and unemployment, according to PMI Mortgage Insurance Co., Walnut Creek, Calif. According to the PMI U.S. Market Risk Index for Fall 2008, the risk of price declines rose by more than 10% in 16 of the nation's top 50 metropolitan statistical areas, primarily in areas that experienced major house price increases during the housing boom. "The risk of future home price declines increased in 94% of all 381 MSAa in the country this quarter," said David W. Berson, chief economist and strategist for The PMI Group. "The majority of these increases aren't statistically significant -- in many cases, risk increased by less than 10% -- but risk did increase by a significant amount, as much as 30% or more, in some states and MSAs where foreclosures and unemployment increased significantly." PMI can be found online at http://www.pmigroup.com.

Farmer Mac has also announced a $65 million capital infusion from six financial institutions that it says will restore its capital position and meet regulatory requirements. The investors are: AgFirst Farm Credit Bank; AgriBank FCB; CoBank ACB; Farm Credit Bank of Texas; U.S. AgBank FCB; and Zions Bancorporation. "This capital infusion, made by investors who know us well with the full support of our regulator, meets our commitment to satisfy regulatory requirements and support our plans to further our congressional mission for the benefit of farmers, ranchers, and rural residents," said Lowell Junkins, acting chairman of Farmer Mac's board.

Michael A. Gerber has been appointed acting president and chief executive officer of the Washington-based Federal Agricultural Mortgage Corp., succeeding Henry D. Edelman. Mr. Gerber will continue to serve as CEO of Farm Credit of Western New York, an association in the Farm Credit System. In conjunction with Mr. Gerber's appointment, the board of Farmer Mac has formed an Executive Committee of the Board consisting of Mr. Gerber; Lowell L. Junkins, acting chairman of the board; and Dennis A. Everson, president of the Agri-business Division of First Dakota National Bank. Farmer Mac said the committee will work closely with Mr. Gerber and others at the government-sponsored enterprise regarding the company's operations, capital structure, and the search for a permanent CEO. The GSE can be found online at http://www.farmermac.com.

Fannie Mae acquired just $40.48 billion worth of mortgages from its seller/servicers in August, its worst purchase month in several years. The weak showing was not unexpected. In August, both Fannie and Freddie Mac reported to government officials that they were "unable to access capital markets to bolster" their capital positions without financing from the Treasury Department, according to James Lockhart, director of the Federal Housing Finance Agency. August was the last month in which Fannie and Freddie were in operation before being placed in federal conservatorships. Compared with those of August 2007, Fannie's loan purchases fell 38%. Freddie Mac -- which reported its purchase figures last week -- also had a horrible August in terms of loan acquisitions. Freddie bought just $25.77 billion from its seller/servicers, a dramatic 43% decline from the level recorded a year earlier. During the month, both government-sponsored enterprises were sellers of mortgage assets, with Freddie unloading $32.5 billion worth of product, one of its largest sales months ever. The GSEs can be found online at http://www.fanniemae.com and http://www.freddiemac.com.

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.