Servicing

Unused commitments on home equity lines of credit shrank by $9 billion in the first quarter and by $31 billion in the second quarter as banks and thrifts reduced their exposure to rising losses. Federal Deposit Insurance Corp. data also show that chargeoffs on HELOCs have jumped from 50 basis points in the third quarter of 2007 to 200 bps in the second quarter. And chargeoffs on closed-end junior liens have jumped to 3% during the same period. "The chargeoffs are beginning to look like unsecured consumer loans," said FDIC senior banking analyst Ross Waldrop. He noted that the chargeoff rate in credit card loans is 5%. But junior liens are at 3% and climbing.

Wells Fargo executive vice president Mark Oman -- who made the bank into the mortgage powerhouse it is today -- says he will retire from the company by the end of 2009. Mr. Oman oversees four business groups, including mortgages and card services, which will continue to report to him for the time being. Wells is the nation's second-largest residential lender and servicer, second only to Bank of America/Countrywide, according to figures compiled by the Quarterly Data Report. Over the past 15 years Wells has grown rapidly in mortgages by purchasing nonbank residential firms and merging with other depositories. Under Mr. Oman, Wells also ventured into subprime lending -- once ranking first in that niche -- but has yet to suffer the traumatic losses experienced by other firms. Mr. Oman joined Wells' predecessor bank, Norwest, in 1979 and was named mortgage chief in 1985. Wells Fargo can be found on the Web at http://www.wellsfargo.com.

Five classes of notes issued by Trainer Wortham First Republic CBO V Ltd., a collateralized bond obligation linked to subprime residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class A-1, from AA to A-minus; class A-2, from A-plus to BBB-minus; class B, from A to B; class C, from BBB-plus to CC; and class D, from BB-plus to C. All the downgraded classes were removed from Rating Watch Negative. The downgrades were attributed to collateral deterioration in the portfolio and underlying exposure to RMBS, of which 35.6% are subprime.

Five classes of notes issued by Commodore CDO II Ltd./Corp., a collateralized debt obligation linked to subprime residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class A-1MM, from A-minus/F1-plus to BBB/F2; class A-2(a), from BBB-minus to BB; class A-2(b), from BBB-minus to BB; class B, from CCC to CC; and class C, from CCC to C. All the downgraded classes were removed from Rating Watch Negative. The downgrades were attributed to "significant collateral deterioration" in subprime RMBS, which constitute nearly half of the portfolio. Fitch can be found online at http://www.fitchratings.com.

Delinquencies and chargeoffs on residential mortgages and construction and development loans accelerated during the second quarter as banks and thrifts reported an 87% drop in profits, according to the Federal Deposit Insurance Corp. Bank earnings fell to $5 billion, compared with $36.8 billion in the second quarter of 2007, after FDIC-insured institutions set aside $50.2 billion in loan loss reserves and charged off $26.4 billion in bad loans. The serious delinquency rate (90-days or more past due) on single-family loan mortgages rose to 3.1% in the second quarter from 2.1% at year-end 2007. Chargeoffs on those residential mortgages totaled $6.6 billion, up from $4.2 billion in the first quarter. Meanwhile, the serious delinquency rate on residential C&D loans rose to 8.66% in the second quarter and chargeoffs totaled $1.7 billion. FDIC officials are expecting more bank failures this year, especially among institutions with high concentrations of residential and commercial C&D loans. The number of institutions in the FDIC's problem bank list rose from 90 to 117 during the quarter.

Thrifts have reported $5 billion in losses for the second quarter after socking away $14 billion in loan loss reserves and taking $5.6 billion in chargeoffs, according to the Office Thrift Supervision. Over the previous three quarters, thrift institutions had reported $14.7 billion in losses, as the serious delinquency rate on one- to four-family loans jumped 100 basis points from 2.8% in the fourth quarter to 3.8% in the second quarter. The 829 OTS-supervised institutions have $32.8 billion in troubled one- to four-family loans on their books that are 90 days or more past due or real estate owned. Meanwhile, OTS data show that thrifts originated $107.5 billion in one- to four-family loans in the second quarter, down from $115.3 billion in the first quarter. Federal Deposit Insurance Corp. data show that bank originations totaled $283 billion, down slightly from $289 billion in the first quarter.

The Hope Now alliance says it modified or entered into new payment plans on 192,034 residential loans during July. The group -- which includes mortgage servicers, investors, and credit counselors -- maintains that it has prevented 2.07 million foreclosures since its inception last summer. Of the 192,034 loans worked out, 58% were subprime and the balance were prime. Meanwhile, the alliance -- basing its information on a survey of nine firms controlling 60% of the subprime servicing market -- estimated that 1.1 million subprime mortgages were scheduled to reset between January and July of this year. At deadline time, the group was holding a news conference about its results.

The Federal Deposit Insurance Corp. is planning to sell IndyMac Bank as a whole unit or in pieces, and the marketing will probably begin in September. "We will widely market it, and we hope to generate a lot of interest," FDIC Chairman Sheila Bair said. The FDIC took over the failed $32 billion Pasadena, Calif.-based thrift on July 11. The agency originally estimated that the failure would cost the FDIC insurance fund $4 billion to $8 billion. However, further evaluation of the assets showed that the insurance fund may have to pay out $8.9 billion to cover losses. Bank failures this year have reduced the FDIC reserve ratio below the statutory minimum 1.05% level, and the FDIC board will consider a "restoration plan" in early October that likely will increase deposit insurance premiums. The FDIC board will also be proposing changes to the current assessment system to shift the burden to riskier banks, Ms. Bair said, including banks that rely heavily on brokered deposits and secured liabilities, such as Federal Home Loan Bank advances.

Fitch Ratings has downgraded two classes of notes from two collateralized debt obligations issued by Blue Heron Funding and backed partly by subprime residential mortgage-backed securities. The class B notes of Blue Heron Funding V Ltd. and Blue Heron Funding IX Ltd. were downgraded from A-minus to C and removed from Rating Watch Negative. Fitch also affirmed the ratings on the certificates issued by the two transactions. The rating agency attributed the downgrades to "significant collateral deterioration" in the portfolios' subprime RMBS, structured finance CDOs with underlying exposure to subprime RMBS, and (in the case of Blue Heron IX) alternative-A RMBS.

Franklin Credit Management Corp., a New York-based company that buys, manages, and sells subprime residential mortgage assets, says it has received a notice of delisting from the NASDAQ Stock Market. The company said trading of its common stock will be suspended at the opening of business on Aug. 29 unless it requests an appeal of NASDAQ's determination, which it said it "expects" to do. The delisting would be based on the failure of Franklin's stock to maintain a minimum bid price of $1 per share. The company said it was notified on Feb. 20 that the stock had failed to maintain the minimum bid price for the preceding 30 business days, and it was given 180 calendar days to regain compliance for at least 10 consecutive trading days. Franklin Credit can be found on the Web at http://www.franklincredit.com.