Servicing

Wall Street firm Lehman Brothers Holdings Inc., which recently worked out a plan to shed billions of dollars worth of problematic mortgage-related assets and failed to find buyers for itself or its assets over the weekend, has filed for U.S. bankruptcy. The company said it would continue to try to sell its broker-dealer operations and investment management division. Lehman said all its U.S. subsidiaries, including its broker-dealers, would continue to operate. The company said some units would be protected from claims in the bankruptcy filing. "Neuberger Berman LLC and Lehman Brothers Asset management will continue to conduct business as usual and will not be subject to the bankruptcy case of its parent, and its portfolio management, research, and operating functions remain intact," Lehman said. "In addition, fully paid securities of customers to Neuberger Berman are segregated from the assets of Lehman Brothers and are not subject to the claims of Lehman Brothers Holdings' creditors."

Bank of America's deal to buy Merrill Lynch could spell trouble for PHH Corp., which has a mortgage lending and servicing relationship with Merrill. Analysts at FBR Capital Markets note that the lending and servicing contract cannot be terminated until the end of 2010, but say they expect that Bank of America probably will take over Merrill's lending and servicing business at that time. FBR said Merrill accounts for 20%, or $8 billion, of PHH's origination volume. The loss of the Merrill relationship could be "incrementally negative for PHH," an FBR report said. FBR lowered its rating on PHH to "market perform" in the wake of the BoA/Merrill Lynch deal.

Eleven classes of notes issued by two collateralized debt obligations linked to subprime or alternative-A residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities include seven classes from Charles River CDO I Ltd./Inc., and four classes from Northlake CDO I Ltd., both structured finance CDOs. All the downgraded classes were removed from Rating Watch Negative, as well as an additional class whose rating was affirmed. The downgrades were attributed variously to collateral deterioration in the portfolios from subprime and alt-A RMBS as well as to underlying exposure to subprime RMBS. Fitch can be found online at http://www.fitchratings.com.

Cooperative Bankshares Inc., Wilmington, N.C., has announced that the federal takeover of Fannie Mae and Freddie Mac has significantly impaired the value of the company's holdings of Fannie and Freddie preferred stock and could affect the capitalization status of Cooperative Bank. The company said it holds 286,000 shares of Fannie's series S preferred stock and 100,000 shares of Freddie's series Z preferred stock. The total market value of the stock, which had a carrying value of $9 million at June 30, had declined to $1.1 million as of the market close on Sept. 10, the company said. If it were required to record a loss based on the securities' value as of Sept. 10 (and unable to record a tax benefit for the loss), the company said the bank would be considered "adequately capitalized" under federal guidelines, but not "well capitalized." Cooperative Bankshares said it is "evaluating its options" to address the capital reduction.

Specialized Loan Servicing, a servicer of residential mortgage loans based in Highland Ranch, Colo., has announced the acquisition of an 82.35% equity interest in the company by Lexia LLC, a subsidiary of Tokyo-based Shinsei Bank Ltd. John Beggins, SLS's chief executive officer, said Shinsei Bank has "a strong track record" in the distressed debt arena and gives SLS additional "financial credibility." Shinsei had total assets worth 12.5 trillion yen ($118 billion) on a consolidated basis in June, SLS said. The servicing company can be found on the Web at http://www.sls.net.

Loan modifications by banks and thrifts rose substantially in the second quarter, but delinquency and default rates also increased, according to data compiled by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Combining their data for the first time, the OCC and the OTS said new loan modifications by banks and thrifts increased by 56% from the first to the second quarter of this year. Repayment plans on home loans serviced by banks and thrifts also increased, but by just 8%. All told, banks and thrifts servicing nearly 35 million home loans engaged in some form of loss mitigation on 208,250 mortgage loans in the first quarter and 252,508 loans in the second quarter. Of the total, 92.6% of the loans were performing, down from 93.4% in the first quarter. The share of loans in foreclosure rose from 1.4% in the first quarter to 1.6% in the second.

Late next month the Federal Deposit Insurance Corp. will accept bids for $360 million in performing commercial real estate loans owned by IndyMac Bank, Pasadena, Calif. The portfolio is being marketed for the agency by First Financial Network Inc., Oklahoma City. As reported by MortgageWire on Sept. 8, bids are due on most of IndyMac's other assets, including its residential servicing franchise. Buyers can buy the whole company or pieces of it. The commercial real estate loan portfolio is being marketed separately, with bids due Oct. 21. FDIC and FFN officials did not respond to telephone calls about the auctions by MW's deadline. The commercial portfolio is being stratified into pools based on collateral and geographic location. The loans are backed by properties in California, Texas, Ohio, Washington, Arizona, and Georgia, according to a statement released by FFN.

Four Democratic senators are calling on Fannie Mae's and Freddie Mac's new chief executives to declare a moratorium of at least 90 days on all foreclosure proceedings and urging them to establish aggressive loan modification programs now that the two mortgage giants have been placed in conservatorship. "This action would provide immediate relief for many homeowners and, as importantly, give each GSE a further opportunity to turn these non-performing loans into performing assets to minimize losses," the senators say in a letter to Fannie CEO Herb Allison and Freddie CEO David Moffett. Sens. Charles E. Schumer (N.Y), Robert Menendez (N.J), Sherrod Brown (Ohio), and Robert P. Casey Jr. (Pa.) also addressed the letter to Federal Housing Finance Agency Director James Lockhart, the government-sponsored enterprise regulator who is overseeing the conservatorships. The four Senate Banking Committee members argued that Fannie's policy of allowing modifications only after a loan is 120 days delinquent is counterproductive. "Though [Fannie's] introduction of the HomeSaver program has brought some relief, a true loan modification remains far more preferable to an additional loan to a delinquent borrower," the Sept. 11 letter says.

Foreclosure filings increased 12% in August and were 27% higher than the level recorded a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The company's U.S. Foreclosure Market Report indicates that foreclosure filings -- default notices, auction sale notices, and bank repossessions -- were reported on 303,879 properties in August. "In August the total number of U.S. properties that received foreclosure filings as well as the national foreclosure rate were both the highest we've seen in any month since we began issuing our report in January 2005," said James J. Saccacio, RealtyTrac's chief executive officer. "However, the annual increase of 27% was actually substantially lower than in previous months this year, when it was hovering around 50% to 65%." The company reported that Nevada, California, and Arizona recorded the highest foreclosure rates in August. RealtyTrac can be found online at http://www.realtytrac.com.

JPMorgan Chase is in advanced talks to buy Washington Mutual, one of the nation's largest residential lenders and servicers, according to a report in American Banker. No other details were available at deadline time. According to figures compiled by National Mortgage News and the Quarterly Data Report, if JPM buys WaMu and all its mortgage assets, it would challenge Wells Fargo for the No. 2 spot among residential servicers. A combined Chase/WaMu servicing platform would have $1.429 trillion in housing receivables, compared with $1.496 trillion for Wells. Bank of America and its Countrywide franchise serviced $2.025 trillion in home mortgages at midyear, according to NMN/QDR. Over the past few years WaMu has been mentioned as a takeover target, with JPM, Citigroup, and a handful of foreign banks mentioned as possible suitors. Hammered by delinquent loans (including subprime), WaMu has been hemorrhaging money. Its stock recently fell to just $1.75. Late Thursday the nation's largest thrift released a preview of its third-quarter results, saying its credit loss provision would be about $4.5 billion, with residential mortgage losses accounting for $3.4 billion of the total. In the second quarter, WaMu's loss provision totaled $5.9 billion. WaMu said net chargeoffs may increase by about 20% in the third quarter, down from a 60% increase tallied in the second quarter.