Servicing

Lehman Brothers Holdings Inc., which suffered an estimated $7.8 billion in gross writedowns largely related to residential mortgages and commercial real estate in the third quarter, has made plans to sell approximately $4 billion of its United Kingdom mortgage portfolio and spin off its CRE-related exposures into a new company. The Wall Street firm, which has estimated that it will take a $3.9 billion net loss in reporting preliminary third-quarter results, said it also plans to sell a majority interest in its investment management division. The company said it has retained BlackRock Financial Management Inc. to sell the United Kingdom portfolio and expects to complete the sale within a few weeks. DBRS has downgraded the company's long-term ratings in response and placed all ratings under review with negative implications. Earlier, Standard & Poor's and Fitch had warned that some of Lehman's ratings might be downgraded due to large percentage declines in its stock price resulting from intensifying concerns about its capitalization.

The IAS360 House Price Index rose 0.9% on a national level in July, but was 11.4% below the level recorded a year earlier, according to Integrated Asset Services LLC, Denver. The index tracks monthly changes in the median sales price of detached single-family residences in "neighborhoods" in 360 counties across the United States, the company said. Three of the four U.S. regions designated by the index posted increases in July, with only the West showing a continued decline (0.7%), IAS reported. The increases in the other regions were 3.1% in the Midwest, 1.7% in the South, and 1.6% in the Northeast. "The IAS360 HPI is unique in that it's not a seasonally adjusted or smoothed index," said Dave McCarthy, president and chief executive officer of IAS. "This, combined with its timeliness and granularity, gives lenders, investors, and consumers a peek at the raw changes in home price forecasts from the front lines." The company, a provider of default management and residential collateral valuation services, can be found online at http://www.iasreo.com.

Consumer satisfaction with the company that services their home loan declined for the second straight year, according to J.D. Power and Associates. The study measures four areas of customer satisfaction: billing, payments, contact with the lender, and annual account administration. On a 1,000-point scale, overall satisfaction fell 14 points to 784 in the 2008 survey. "For most customers, their mortgage servicer is akin to a utility company -- they just want things to work, and they expect a friction-free experience," said Rocky Clancy, executive director for financial services at J.D. Power and Associates. "Bumps in the road" that require consumers to ask questions or solve problems lowers customer satisfaction, he said. The survey found that electronic billing and payment options increased customer satisfaction. Branch Banking and Trust ranked highest among primary servicers for the second consecutive year, with a customer satisfaction score of 839. J.D. Power, headquartered in Westlake Village, Calif., can be found online at http://www.jdpower.com.

Residential home loan delinquencies have risen for six straight quarters, with 3.53% of borrowers being at least 60 days behind on their mortgage payments in the second quarter, according to a TransUnion analysis of consumer loan data. This was up 51% from the level recorded in the second quarter of last year, TransUnion said. Nevada and Florida continued to top the list of states with the highest 60-day delinquency rates in the TransUnion data, with rates of 6.63% and 6.47%, respectively. "The second quarter of 2008 showed not only a substantial increase in the nation's unemployment rate and unprecedented gas prices, but also a continued decline in consumer confidence," said Keith Carson, a senior consultant in TransUnion's financial services group. The company can be found on the Web at http://www.transunion.com.

More than 100,000 homeowners lost their properties to foreclosure in August, 6% more than in July and more than 80% higher than in August 2007, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm. Foreclosures hit nearly 102,000 in August, and so far this year lenders have repossessed a record 656,545 properties nationwide, the company said. That amounts to 8.6 of every 1,000 households in the United States. "While we continue to see record numbers of foreclosures and actions that may lead to foreclosure, and despite the higher 6.1% August unemployment rate, it does appear that the overall situation is beginning to stabilize," said Alexis McGee, president of the firm. "Importantly, many regions of the country -- particularly the Northeast and Midwest -- have seen a less dramatic increase in foreclosures and pre-foreclosure activity in 2008 compared with 2007." The company can be found online at http://www.foreclosures.com.

The International Swaps and Derivatives Association, New York, has announced that it will publish a protocol to facilitate settlement of credit derivative trades involving Fannie Mae and Freddie Mac. The decision to establish the protocol was made after consultation with industry participants, the ISDA said. The protocol will be open to ISDA members and nonmembers alike. Fannie and Freddie were taken over and placed in conservatorship by the U.S. government on Sept. 7. The association can be found on the Web at http://www.isda.org.

Genworth Financial Inc., the Richmond, Va.-based life and mortgage insurance holding company, says it has exposure of just under $200 million in debt and equity from Fannie Mae and Freddie Mac. As of Sept. 5, Genworth had reduced its total holdings of senior debt in these two companies to $119 million, compared with $141 million at the end of the second quarter, Genworth said. It also had reduced its preferred stock holdings to $72 million from $126 million on June 30. Genworth said it currently holds no subordinated debt or common stock in either Fannie Mae or Freddie Mac. The company added that its total preferred stock holdings in these two organizations represent one-tenth of 1% of its total investment portfolio of approximately $72 billion. Genworth can be found online at http://www.genworth.com.

An emergency credit facility that will give Fannie Mae and Freddie Mac access to short-term loans of seven to 30 days is also open to the 12 Federal Home Loans Banks, even though the banks are unlikely to need it, according to a GSE regulator. "The Federal Home Loan Banks have performed remarkably well over the last year," Federal Housing Finance Agency Director James Lockhart said. All but one is profitable, and "therefore it is very unlikely that they will use the facility," he added. The Chicago FHLBank posted a $74 million loss in the second quarter following a $78 million loss in the first quarter. The FHLBanks can put up advances or agency mortgage-backed securities as collateral to borrow at Treasury's credit facility at an interest rate of 50 basis points above the London interbank offered rate. "We can issue [consolidated] debt at much more attractive rates than that," said John Fisk, director of the FHLBank System Office of Finance. However, FHLBank consolidated debt is backed by all 12 FHLBanks. Individual banks can tap Treasury's credit facility. "We are pleased that Treasury has created this liquidity facility as a backstop," Mr. Fisk said. "Treasury created it to ensure stability and market access, and that is a good thing."

Some of the nation's largest depositories -- which are also seller/servicers for the government-sponsored enterprises -- are filing new disclosures indicating that they will take large hits on their investments in Fannie Mae and Freddie Mac preferred stock. On Monday Wells Fargo, the largest annual seller of loans to Freddie, disclosed that it would take a charge against earnings in the third quarter on the $480 million in Fannie/Freddie preferred stock it owns. A spokeswoman for Wells declined to provide a range on what the charge might be. Even though Wells is Freddie's biggest customer, it owned much more in Fannie preferred stock than Freddie -- $336 million to $144 million. Sovereign Bancorp of Pennsylvania said it would take a noncash "other-than-temporary" charge on the $622.6 million GSE preferred shares it owns. An other-than-temporary charge means it cannot "write up" the value of the stock unless the shares recover and it then sells the stock. Sovereign was the 17th-largest Freddie Mac customer in terms of loan sales.

The Mortgage Bankers Association is hoping to open up a dialogue with the Federal Housing Finance Agency on reducing guarantee and delivery fees charged to Fannie Mae and Freddie Mac seller/servicers. In an interview with MortgageWire, new MBA chief John Courson said, "We'll encourage the new conservatorship management to take a fresh set of eyes" to both types of fees, especially those charged on mortgages with high loan-to-value ratios. According to company figures, the average g-fee on a newly delivered Fannie Mae loan was 27.8 basis points in the second quarter. The charge on Freddie loans were much lower -- 22 bps, which indicates that the company was having a harder time passing on costs to its lending customers. The MBA says the two government-sponsored enterprises had also been tacking on delivery fees in the range of 25-50 bps. One executive, requesting that his name not be used, said some delivery fees were as high as 100 bps.