Servicing

Lehman Brothers has begun to reopen for business under the ownership of Barclays Capital, and more than 10,000 Lehman employees have been offered jobs in the new entity, according to Barclays PLC. The actions followed the recent approval by the Bankruptcy Court for the Southern District of New York of Barclays' agreement to acquire Lehman Brothers' investment banking and fixed-income and equity sales, trading, and research businesses, among others. Lehman's banking and advisory functions are now open for business, and its capital markets and trading businesses will resume full operations shortly, Barclays said. Employment offers have been made to all employees of the Lehman businesses acquired by Barclays. The combined firm will use the Barclays Capital name. Barclays said it has purchased the rights to use the Lehman Brothers name and will consider opportunities to do so.

Amy Brandt, who was the chief executive officer of WMC Mortgage Co. during that alternative-A lender's salad days, has returned to the industry by buying two servicers and an Internet originator. Vantium Capital Inc., her private-equity firm, was planning to announce that it has acquired the assets of Strategic Recovery Group LLC, a Plano, Texas-based company that collects on defaulted and charged-off debts; its Acqura Loan Services LLC, which manages subprime portfolios; and Strategic Recovery's online-only lending business, which uses the brand name Go Financial Solutions. Vantium, a New York company, would not make executives available for interviews. In a press release, Ms. Brandt said, "We will use these companies as a platform to develop, or acquire, new businesses that will serve the financial and investment markets." The firm did not say how much it paid for any of the assets. It has financial backing from Leon Black's Apollo Global Management LLC, the New York private-equity firm that sold WMC Mortgage to General Electric Co. in 2004. Acqura is to service assets bought by a Vantium fund managed by Michael Commaroto, the former head of private-label mortgage-backed securities at Deutsche Bank AG, Vantium said.

The Federal Housing Administration is warning its lenders not to finance "buy-and-bail" transactions in which the borrowers are planning to default on their old mortgage as soon as they move into their new home. These borrowers generally tell lenders that they are planning to rent their current home after they move into a less expensive house. To stop this "unscrupulous practice," the FHA says it is temporarily changing its underwriting guidance to ensure that the borrower can make payments on both mortgages without relying on rental income. The underwriting analysis "may not consider any rental income from the property," the FHA says in a mortgagee letter, unless the borrower has a loan-to-value ratio of 75% or less. Fannie Mae has instituted a similar buy-and-bail policy.

Before the Senate Banking Committee approves a $700 billion bailout of the credit and mortgage markets, some of its members want assurances that the government will not overpay for subprime MBS -- plus promises that taxpayers will get warrants in companies that sell to the government. At a hearing Tuesday -- attended by every senator on the committee as well as a noisy faction from ACORN that was silenced by committee Chairman Christopher J. Dodd, D-Conn. -- several elected officials wanted to know at what price the government would purchase mortgage-backed securities. "How will the assets be priced?" asked Sen. Robert Menendez, D-N.J. "If the seller doesn't like the price, will the taxpayer be asked to pay a premium?" The question was aimed at Treasury Secretary Henry Paulson, who has been putting together the bailout plan over the past few weeks. Committee members expressed dismay at having to spend so much of the taxpayers' money to help bail out Wall Street. "It's financial socialism," said Sen. Jim Bunning, R-Ky. "And it's un-American."

Fitch Ratings is the first rating agency to rate mortgage loans based on VantageScore, the algorithm created by the three credit bureaus to compete with Fair Isaac. "The mortgage crisis has not only shown that a multitude of factors influence the performance of high risk loans, but has also underscored the need for an improved generic consumer scoring model against which mortgage lenders can more reliably make their loans," said group managing director Huxley Somerville, who heads Fitch's U.S. RMBS group. "Built using data that includes the dramatic rise in consumer indebtedness in recent years and regularly revalidated to ensure the model's continued predictiveness, VantageScore has shown to be more accurate than FICO because it excludes the use of authorized trade lines." The latest version of FICO had originally excluded authorized trade lines, but Fair Isaac said the feature is being added back into FICO 08 because of concerns related to the Equal Credit Opportunity Act. Fitch has fully incorporated VantageScore into ResiLogic 2.1, a quantitative model that provides credit risk analysis at the individual loan and pool level for residential mortgage loans.

The Summit County [Ohio] Port Authority has voted to issue $12.5 million in tax-exempt bonds to help homeowners in the region who are facing foreclosure, according to American Homeowner Preservation Inc., Akron, Ohio. The authority approved the use of the bonds to help finance the work of AHP Ohio, a new nonprofit organization that is now accepting applications from distressed homeowners in the Summit County region. AHP Ohio said its program offers qualified homeowners who are behind on their payments and owe more than their house is worth a way of selling their homes and leasing them back at affordable monthly payments. The organization can be found on the Web at http://www.ahpoh.org.

Credit union leaders were working through the weekend to ensure that the massive government bailout of the mortgage industry includes their industry, too -- especially corporate credit unions, which are treading water amidst huge portfolios of underwater mortgage-backed securities. According to a report in Credit Union Journal, a sister publication to National Mortgage News, corporate CUs have accrued some $10 billion in unrealized losses on their mortgage-backed securities -- more than the capital of the entire corporate network. Almost every corporate CU is holding underwater mortgage securities, and more losses are expected to come to light this week and next as the corporates report their August financials to their members, the newspaper reported.

Under legislation now being debated on Capitol Hill, any financial institution headquartered in the United States can be a seller of mortgage-related assets to the Treasury, which will be the "market maker" and sole determiner of price. On Monday, Treasury and Bush administration officials continued their talks on an estimated $700 billion bailout of the capital and mortgage markets. Meanwhile, financial service executives were trying to figure out the most important part (for them) of the historic bailout plan: at what price will Treasury buy their troubled assets? "The biggest outstanding question is how the price of purchased assets will be determined," said Merrill Lynch analyst Akiva J. Dickstein in a new research report. "While the government will not purchase assets at par, the scope of the program plus the fact that the government is unlikely to demand the same yields as private sector purchases means that spreads are likely to tighten." As negotiations on the bill continue, there is talk that the Treasury might liberalize its guidelines and eventually become a purchaser of assets backed by credit cards, automobiles, and commercial real estate. Meanwhile, over the weekend, Goldman Sachs and Morgan Stanley -- the last two of the remaining independent investment banking giants -- said they would transform themselves into bank holding companies, a move that will allow them to accept more bank deposits but will subject them to greater regulatory scrutiny. Goldman owns Litton Loan Servicing, one of the largest "scratch-and-dent" servicers in the United States. Morgan owns Saxon Mortgage, which services $50 billion in subprime loans.

Fitch Ratings has placed Washington Mutual Inc., Seattle, which has been rumored to be on the auction block, on Rating Watch Evolving. Fitch attributed the action to "recent market developments," including the waiver by TPG Capital and related entities of price reset rights under an investment agreement (and related warrants) associated with their June 2008 investments. "Because the waiver removes an important potential hurdle to the sale of WaMu, Fitch believes it signals a much higher probability of an imminent transaction which, depending upon the buyer and the specifics of the transaction, could result in the upgrade or downgrade of [WaMu] and related subsidiaries," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Several companies -- VIST Financial Corp., Bank of the James Financial Group Inc., and Torchmark Corp. -- have announced that they will likely take impairment charges against their holdings of preferred stock in Fannie Mae and Freddie Mac. VIST, based in Wyomissing, Pa., said it held preferred stock in the government-sponsored enterprises with a total cost of $7.3 million as of June 30. The company said it expects to record a noncash other-than-temporary impairment charge of up to $7.3 million on the stock in the third quarter. Bank of the James Financial, based in Lynchburg, Va., reported that it held GSE preferred stock with a par value of $3.9 million as of Sept. 18, and noted that the shares were trading at less than 5% of par value. It estimated that it will take a noncash other-than-temporary impairment charge of $1.7 million to $1.9 million for the third quarter. Torchmark, based in McKinney, Texas, said it held about $2 million in GSE preferred stock, plus $207 million in the senior and subordinated debt of American International Group, Lehman Brothers, and Washington Mutual, as of Aug. 31. "In the unlikely event that the company determines the entire amount of these investments to be other than temporarily impaired, the after-tax impairment cost would be $136 million," Torchmark said. The companies can be found online at http://www.vistfc.com, http://www.bankofthejames.com, and http://www.torchmarkcorp.com.