Servicing

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.

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.