Servicing

The sales of existing single-family detached homes in California were up 43.4% in July from the level recorded a year earlier, according to the California Association of Realtors. The seasonally adjusted annualized rate of closed-escrow resales totaled 489,080 in July, up from the revised 341,130-unit rate recorded in July 2007, CAR reported. The median price of an existing single-family detached home in California totaled $350,760 in July, down 40.3% from a revised $587,560 a year earlier, the association said. "Sales improved significantly in July 2008 and remained above the 400,000 level for the third consecutive month," said CAR president William E. Brown. "Deeply discounted distressed sales continue to drive volume in many regions of the state." CAR can be found online at http://www.car.org.

Thornburg Mortgage Inc., Santa Fe, N.M., has reported that earnings of $412.3 million for the second quarter were adjusted dramatically to $22.7 million as a result of a $209.6 million loss on the company's mortgage-backed securities portfolio, among other items. The adjustment was partially offset by a $14.3 million net gain on the sale of adjustable-rate mortgage assets and real estate owned. (Thornburg reported net income of $83.4 million a year earlier.) During a conference call, president and chief executive Larry Goldstone said that since the company entered into an override agreement, rating agencies have downgraded many of its mortgage securities. He said Thornburg has seen downgrades by Fitch Ratings of $36.4 million (carrying value) of MBS through June 30, and $1.1 billion between June 30 and Aug. 22 on the MBS collateralizing reverse repurchase agreements. "These downgraded securities still have ample credit support, and we feel more than adequately protected," Mr. Goldstone said. The company has used amounts in the liquidity fund to pay margin calls totaling $219.0 and has identified additional downgrades in its portfolio that would result in similar margin calls of $25.9 million, he said. "Anything S&P or Moody's does going forward will be a secondary review, which may come out with higher ratings," Mr. Goldstone said. "We hope we've seen the lion's share of it, but we won't know until everybody's done."

Fannie Mae purchased $42.3 billion in home mortgages during July, its lowest acquisition volume in 41 months, according to new company figures. Compared with June's volume, Fannie's acquisitions tumbled 33%. In July of last year -- as the nation's liquidity crisis began to gather steam -- Fannie bought $66.3 billion in mortgages. Meanwhile, Freddie Mac bought $34.6 billion in loans during July, its lowest purchase volume since January ($32 billion). Both government-sponsored enterprises are trying to preserve capital as they face higher costs to raise new debt and equity. The GSEs can be found on the Web at http://www.fanniemae.com and http://www.freddiemac.com.

JPMorgan Chase & Co. has declared in a new regulatory filing that the value of its Fannie Mae and Freddie Mac perpetual preferred stock has fallen by half, to $600 million. The bank/investment bank offered few other details about its holdings, and at deadline time a spokesman had not returned a telephone call about the matter. JPMorgan holds $1.2 billion in the preferred stock of the government-sponsored enterprises. It says the precise loss it will book in the declining investment "is difficult to determine, given the significant volatility being experienced in the market value of these securities." Meanwhile, Philadelphia-based Sovereign Bancorp, which owns $899.5 million in Fannie Mae and Freddie Mac preferred stock, has taken $280 million worth of "other-than-temporary" charges on that investment since the fourth quarter of 2004. These charges have been subtracted from earnings. Once the shares are placed in the other-than-temporary category, Sovereign cannot "mark up" the value of the preferred shares unless the share price recovers and it sells the stock.

Twenty-one classes of notes issued by four collateralized debt obligations with exposure to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings and removed from Rating Watch Negative. The affected securities are as follows: six classes from Independence IV CDO Ltd./Inc., a cash flow structured finance CDO; five classes from C-BASS CBO XVIII Ltd., a static cash structured finance CDO; five classes from C-BASS CBO XIX Ltd., a static CDO; and five classes from Costa Bella CDO Ltd./Corp., a hybrid structured finance CDO. The downgrades were attributed to collateral deterioration in the portfolios, especially in subprime RMBS and structured finance CDOs with underlying exposure to subprime RMBS.

Fitch Ratings has downgraded the primary servicer rating of Cleveland-based Capstone Realty Advisors from CPS2 to CPS3 and withdrawn the rating. Fitch said the moves reflect "the departure of the company's senior management team and the declining financial strength of parent company National City Corp.," which is rated A with a negative outlook. "Additionally, Capstone has informed Fitch that it is not prepared to provide further information regarding the future of the company's servicing operation at this time." Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating. Capstone can be found online at http://www.capstonegroup.com.

The long-term Issuer Default Rating and senior debt rating of BankUnited Financial Corp. have been downgraded from BB to BB-minus by Fitch Ratings, partly as a result of losses on adjustable-rate mortgages. Fitch also downgraded certain other ratings of BankUnited and its subsidiaries and placed them on Rating Watch Negative. The downgrade of the long-term IDR was based on "reduced financial flexibility, as the operating bank subsidiary [BankUnited FSB] is increasingly challenged by asset quality deterioration," the rating agency said. Nonperforming assets surged 61% in the second quarter to $1.1 billion, primarily as a result of problems related to the payment-option ARM portfolio, Fitch said.

The ratings of American International Group Inc. and its insurance and financial services subsidiaries have been placed on Rating Watch Negative by Fitch Ratings, partly as a result of exposures to residential mortgage-backed securities. Fitch previously had a negative rating outlook on AIG and the majority of its insurance-related subsidiaries that are rated by Fitch, and a stable rating outlook on AIG's financial services subsidiaries (including AIG Capital Corp., International Lease Finance Corp., and American General Finance Inc.). Fitch said the rating actions were based on an updated assessment as part of its ongoing ratings review of AIG and its subsidiaries. The actions reflect "Fitch's uncertainty regarding potential outcomes of AIG's previously announced business unit review, which is expected to be completed in late September," the rating agency said. The actions also reflect uncertainty related to AIG's "potential for additional losses" on various exposures to residential mortgage-backed securities, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Nearly 60% of 278 economists expect a special Federal Housing Administration refinancing program to reduce mortgage foreclosures, according to a survey by the National Association of Business Economists. But "only 34% feel it will help hasten the housing recovery and only 31% say it will help stabilize housing prices," said the NABE, which polled its members from July 25 to Aug. 11. President Bush signed the housing legislation that recreated the FHA refinancing program on July 30. The housing bill also expanded Fannie Mae's and Freddie Mac's lines of credit at the U.S. Treasury and granted the Treasury secretary the authority to purchase stock in the two government-sponsored enterprises. "With regard to possible Treasury support of the GSEs, fully 75% agree that these institutions are 'too important to fail,' and only 20% felt that such assistance would necessarily amount to nationalization," the NABE said.

Citigroup, in a new report, says it is unlikely that the federal government will nationalize Fannie Mae and Freddie Mac, while admitting that in time some type of federal action may be necessary. The report says the government-sponsored enterprises are not entirely without options, adding that their new regulator, the Federal Housing Finance Agency, could ease "the arbitrary capital surplus requirement further." It adds, "given our analysis, which shows that both [Fannie Mae and Freddie Mac] should have sufficient capital through (at least) year-end 2008 under a variety of negative credit scenarios, all parties could wait-it-out until market conditions improve." In Monday's trading, Freddie's share price was up 15% at one point to $3.26, while Fannie's was up 5% to $5.24.